CITIZENS UTILITIES COMPANY
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 001-11001
CITIZENS UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 06-0619596
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-8800
Securities registered pursuant to Section 12(b) of the Act:
Common Stock Series A, par value $.25 per share New York Stock Exchange
Common Stock Series B, par value $.25 per share New York Stock Exchange
(Title of each class) (Name of exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
Yes X No
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of January 31, 1996: $2,721,397,606.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 31, 1996.
Common Stock Series A 154,679,357
Common Stock Series B 73,326,013
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 1996 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
Item 1. Description of Business
(a) General Development of Business
The "Company" includes Citizens Utilities Company and its subsidiaries except
where the context or statement indicates otherwise. The Company is a diversified
operating public utility which provides, either directly or through
subsidiaries, telecommunications, electric distribution, natural gas
transmission and distribution and water or wastewater services to nearly
1,600,000 customer connections in areas of nineteen states.
The Company was incorporated in Delaware in 1935 to acquire the assets and
business of a predecessor corporation. Since then, the Company has grown as a
result of investment in owned utility operations and numerous acquisitions of
additional utility operations. It continues to consider and carry out business
expansion through acquisitions and joint ventures in traditional public utility
and related fields and the rapidly evolving telecommunications and cable
television industries. The Company's strong financial resources and consistent
operating performance enable it to make the investments and conduct the
operations necessary to serve growing areas and to expand through acquisitions.
In 1993 and 1994, the Company agreed to acquire from GTE Corp. and ALLTEL
Corporation approximately 610,000 local telephone access lines and 7,000
cable subscribers in twelve states for approximately $1.4 billion. As of
December 31, 1995 all but approximately 23,000 local telephone access lines
in Nevada have been transferred to the Company.
(b) Financial Information about Industry Segments
The Consolidated Statements of Income and Note 10 of the Notes to Consolidated
Financial Statements included herein sets forth financial information about
industry segments of the Company for the last three fiscal years.
(c) Narrative Description of Business
TELECOMMUNICATIONS
The Company provides telecommunications services to all segments of the
marketplace. Telecommunications services consist of local exchange service,
centrex service, network access service, intrastate and interstate toll
services, competitive access services and directory services. The Company
provides telecommunications services to the following approximate number of
primarily residential customers in the following states:
State Customers
----- ---------
New York 295,600
West Virginia 139,400
Arizona 133,000
California 116,300
Tennessee 81,100
Idaho 18,600
Utah 18,300
Oregon 13,100
Montana 7,800
New Mexico 4,700
Louisiana 2,700
Washington 2,300
------------
Total 832,900
============
<PAGE>
Various state regulatory agencies, state legislatures and the federal government
have initiated proceedings to promote the development of competition in
telecommunications markets. These proceedings are focused on removing the
regulatory and legal barriers to competitive entry into the interLATA toll,
intraLATA toll and local exchange markets and developing rules to govern the
relationship among competitors in these markets. Simultaneously, many states are
investigating or have implemented procedures for local exchange companies to
enter into incentive regulatory frameworks ("IRF") as an alternative to
traditional rate of return regulation and/or classifying services on the basis
of the presence of competition and allowing deregulation or flexible pricing
regulation for the services deemed competitive. Local exchange competition has
been authorized in the following states in which the Company currently provides
local exchange service: Arizona, California, New York, Oregon, Tennessee, Utah
and West Virginia.
On November 8, 1995, the California Public Utilities Commission issued a final
order approving a restructuring of Citizens Telecom of California's ("CTCC")
rates and an Incentive Regulatory Framework ("IRF"). The restructured rates
allow CTCC to compete more effectively. Under the IRF, CTCC can earn and keep up
to 1.5% above its authorized rate of return while earned returns greater than
1.5% and up to 5% above its authorized rate of return will be shared equally
with customers.
The Company has developed, and is implementing, an aggressive growth strategy to
take advantage of opportunities in the emerging telecommunications marketplace.
This strategy includes expansion of the Company's customer base and
telecommunications services. The Company's customer base expansion is
focused on its franchised service territories as well as markets adjacent to
these franchised service territories, and includes customers of affiliated
companies. The Company's expansion of telecommunications of services is with
the objective of becoming a full service telecommunications provider,
offering to customers an integrated package of products and services.
The Company will expand into additional markets by offering its long
distance service in combination with other value-added services such as
Internet access, messaging and Centrex. The Company sells its products
using multiple sales distribution channels and a marketing organization
structured around product management and customer segmentation. The
key products the Company offers or plans to offer are long-distance,
or toll, services, advanced CLASS, voice mail, Internet access, data,
cellular and paging services in addition to its traditional local exchange
services. As required, approvals have been and are received, the Company has
begun and intends to provide intrastate and interstate toll services in
those markets it currently serves as well as several adjacent markets. Toll
services include One plus, 800, calling card, 10XXX and prepaid calling
card services. The Company is investigating other value-added services
such as fax on demand, voice activated dialing, desktop video conferencing,
cable modem and direct broadcast satellite.
The Company currently contracts for advertising sales, printing and distribution
for its 77 telephone directories with a circulation of approximately 1.7
million.
The Company expects to expand and enhance its network in order to offer
distribution capability to interexchange carriers and potentially to other long
distance resellers, cellular companies, cable companies, and other independent
telephone companies. The Company currently sells access primarily to AT&T Corp.,
MCI Communications Corp. and Sprint Corp. and provides billing and collection
services to AT&T Corp.
The Company continues to expand its subsidiary, Electric Lightwave, Inc.
("ELI"), a competitive access provider in Arizona, California, Oregon, Utah and
Washington. Through ELI, the Company has been granted authority in Washington,
Utah and Oregon to provide competitive local exchange service. The Company
completed construction of a fiber-optic route from Las Vegas, Nevada to Phoenix,
Arizona which provides the Company with fiber optic capacity for its long
distance operations as well as for other telecommunications carriers.
The Company owns a one-third interest and is general managing partner of
Mohave Cellular, a cellular limited partnership operating six cell sites in
Arizona.
<PAGE>
On September 22, 1994, a subsidiary of the Company and a subsidiary of Century
Communications Corp. ("Century") entered into a joint venture agreement for the
purpose of acquiring, for approximately $89 million, and operating two cable
television systems in southern California (the "Systems"). Century is a cable
television company of which Leonard Tow, the Chairman, Chief Executive Officer
and Chief Financial Officer of the Company, is Chairman, Chief Executive Officer
and Chief Financial Officer. In addition, Claire Tow, a director of the Company,
is a Senior Vice President and a director of Century and Robert Siff, a director
of the Company is a director of Century. The joint venture is governed by a
management board on which the Company and Century are equally represented. The
joint venture has entered into an agreement pursuant to which a subsidiary of
Century (the "Manager") will manage the day-to-day operations of the Systems.
The Manager will not receive a management fee but will be reimbursed only for
the actual costs it incurs on behalf of the joint venture. With respect to the
purchase of any service or asset for the joint venture for use in the Systems,
the Manager is obligated to pass through to the joint venture any discount, up
to 5%, off the published prices of vendors and is entitled to retain any
discount in excess of 5%. On September 30, 1994, the joint venture acquired the
first system serving approximately 26,500 subscribers. On November 30, 1995, the
joint venture acquired the second system, serving approximately 20,700
subscribers.
The Company has entered into a systems integration agreement with ALLTEL
Corporation to reengineer all local exchange telephone billing and customer care
business processes and to develop the next generation of telecommunications
support systems.
NATURAL GAS
Operating divisions of the Company provide natural gas transmission and
distribution services to the following approximate number of primarily
residential customers in the following states.
State Customers
----- ---------
Louisiana 262,900
Arizona 88,100
Colorado 12,200
-------
Total 363,200
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases all needed
natural gas, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. The natural gas
industry is subject to seasonal demand, with the peak demand occurring during
the heating season of November 1 through March 31. The Company's natural gas
sector experiences third party competition from fuel oil, propane, and other
natural gas suppliers for most of its large consumption customers (of which
there are few) and from electric suppliers for all of its customer base. The
competitive position of natural gas at any given time depends primarily on the
relative prices of natural gas and these other energy sources.
The Company continues to expand its northern Arizona natural gas transmission
and distribution service area. The service area has grown from 65,000 customers
in 1991 to 82,000 customers as of December 31, 1995.
ELECTRIC
Operating divisions of the Company provide electric transmission and
distribution services to the following approximate number of primarily
residential customers in the following states:
State Customers
----- ---------
Arizona 58,500
Hawaii 28,800
Vermont 20,000
------
Total 107,300
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases 80% of needed
electric energy, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. As a whole, the
Company's electric sector does not experience material seasonal fluctuations.
<PAGE>
There have been federal and state regulatory activities with the aim of creating
a more competitive environment in the electric utility industry. These federal
and state regulatory activities are still in the investigation stage. The
Company anticipates no material adverse impact on its electric sector should the
industry be opened to competition since the Company is not a large generator of
electric power and serves primarily residential customers. The advent of
competition would most likely provide opportunities for expansion. In response
to regulatory initiatives, the Company's electric sector is proceeding with
demand-side management programs and integrated resource planning techniques
designed to promote the most efficient use of electricity and to reduce the
environmental impacts associated with new generation facilities.
In 1994, the Company filed for a $19,153,000 rate increase with the Hawaii
Public Utilities Commission ("HPUC"). Part of the requested increase is for the
recovery of restoration and repair costs associated with Hurricane Iniki. In an
effort to reduce the rate impact on its customers, the Company subsequently
filed an application with the HPUC to recover $8,000,000 of the $19,153,000
through a statewide surcharge to partially recover Iniki restoration and repair
costs under the provisions of Subsection 269-16.3 of the Hawaii Revised
Statutes. If the HPUC approves the surcharge application, customers of
all electric utility companies in Hawaii would pay a portion of the approved
Iniki restoration and repair costs over a five year period and the
Company's rate increase request will be reduced by $8,000,000. The HPUC
issued an Interim Decision and Order which took effect on June 15, 1995
granting the Company a $5,983,000 interim increase in annual revenues.
The second phase of the requested rate increase and the statewide surcharge
is expected to be included in a final order from the HPUC. The Company
expects a final order in the first half of 1996.
WATER/WASTEWATER
The Company provides water and/or wastewater treatment services to the following
approximate number of primarily residential customers in the following states:
State Customers
----- ---------
Arizona 107,600
Illinois 68,700
California 59,600
Pennsylvania 27,200
Ohio 14,600
Indiana 1,300
----------
Total 279,000
==========
The provision of services and/or rates charged are subject to the jurisdiction
of federal, state and local regulatory agencies. A significant portion of the
Company's water/wastewater treatment sector construction expenditures necessary
to serve new customers are made under agreements with land developers who
generally advance funds for construction and/or plant to the Company that are
later refunded in part by the Company as new customers and revenues are added in
the respective land developments.
In addition to increasing customers through agreements with land developers, the
Company acquires ongoing water/wastewater operations from municipalities and
private companies. In 1995, the Company acquired approximately 4,300 customers
of the water/wastewater systems in Youngtown, Arizona and Douglasville,
Pennsylvania.
In September 1992, the EPA filed a complaint with the United States District
Court for the Northern District of Illinois relating to alleged violations by
the Company's Illinois subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company settled this action on March
21, 1995 and paid a $490,000 fine. Under the settlement, the Company also agreed
to construct plant improvements, with an estimated cost of $2,200,000, which
would be required in order to comply with new discharge limits provided for by
the settlement. Shortly after the action was settled, the Company entered into a
tentative agreement with the Village of Bolingbrook to transfer flow from the
Company's to the Village's nearby facilities for treatment. If this agreement
with the Village is approved by the EPA and the Court, the Company's plant would
be converted to a flow transfer station. The Company's financial obligations
would be the same under either the plant improvement project or the flow
transfer project. The agreement with the Village of Bolingbrook is now pending
approval by the EPA and the court. As a regulated entity, the Company is
entitled to earn a fair rate of return on improvements that are placed in
service for the benefit of its customers. The Company believes that the cost of
the above discussed improvements will be recovered through customer rates.
<PAGE>
General
The Company's public utility operations are conducted primarily in small and
medium size towns and communities. No material part of the Company's business is
dependent upon a single customer or small group of customers for its revenues.
As a result of its diversification, the Company is not dependent upon any single
geographic area or upon any one type of utility service for its revenues. Due to
this diversity, no single regulatory body regulates a utility service of the
Company accounting for more than 10.3% of its 1995 revenues.
The Company is subject to regulation by the respective state regulatory agencies
and federal regulatory agencies. The Company is not subject to the Public
Utility Holding Company Act. Order backlog is not a significant consideration in
the Company's business, and the Company has no contracts or subcontracts which
may be subject to renegotiation of profits or termination at the election of the
federal government. The Company holds franchises from local governmental bodies,
which vary in duration. The Company also holds certificates of convenience and
necessity granted by various state commissions which are generally of indefinite
duration. The Company has no special working capital practices. The Company's
research and development activities are not material. There are no patents,
trademarks, licenses or concessions held by the Company that are material.
The Company had 4,760 employees at December 31, 1995.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
The Company does not have any foreign operations or material export sales except
for the following: In 1995, the Company made a $4,200,000 investment in and
entered into definitive agreements with Hungarian Telephone and Cable Corp.
("HTCC"), a Delaware corporation. Pursuant to these agreements (i) the Company
has rights to purchase up to 54% of HTCC common stock, (ii) provides certain
management services to HTCC on a cost-plus basis, (iii) has the right to and has
designated one member of the HTCC Board of Directors, and (iv) has provided HTCC
with guarantees and financial support. HTCC presently controls the rights to
own, operate and expand certain telecommunications services in certain
regions of Hungary. The management services fee payable by HTCC to the
Company is the greater of 5% of adjusted gross revenues of HTCC or a monthly
fixed amount. In addition, expenses incurred by the Company in providing such
services, including certain allocable overhead items, are to be reimbursed by
HTCC. A subsidiary of the Company is the guarantor of a $33,200,000 bank loan
to HTCC. The Company has agreed to provide HTCC with up to $20,000,000 of
additional financial support. The Company has been compensated for such
guarantees and financial support.
<PAGE>
Item 2. Description of Property
The administrative offices of the Company are located at High Ridge Park,
Stamford, Connecticut, 06905 and are leased. The Company owns property
including: telecommunications outside plant, central office, microwave radio and
fiber-optic facilities; electric generation, transmission and distribution
facilities; gas transmission and distribution facilities; water production,
treatment, storage, transmission and distribution facilities; and wastewater
treatment, transmission, collection and discharge facilities; all of which are
necessary to provide services at the locations listed below.
State Service(s) Provided
Arizona Electric, Natural Gas,
Telecommunications,*
Water, Wastewater
California Telecommunications, Water
Colorado Natural Gas
Hawaii Electric
Idaho Telecommunications
Illinois Water, Wastewater
Indiana Water
Louisiana Natural Gas, Telecommunications
Montana Telecommunications
New Mexico Telecommunications
New York Telecommunications
Ohio Water, Wastewater
Oregon Telecommunications
Pennsylvania Water
Tennessee Telecommunications
Utah Telecommunications
Vermont Electric
Washington Telecommunications
West Virginia Telecommunications*
* Certain properties are subject to mortgage deeds pursuant to Rural Utilities
Services and Rural Telephone Bank borrowings.
<PAGE>
Item 3. Legal Proceedings
In September 1992, the EPA filed a complaint with the United States District
Court for the Northern District of Illinois relating to alleged violations by
the Company's Illinois subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company settled this action on March
21, 1995 and paid a $490,000 fine. Under the settlement, the Company also agreed
to construct plant improvements, with an estimated cost of $2,200,000, which
would be required in order to comply with new discharge limits provided for by
the settlement. Shortly after the action was settled, the Company entered into a
tentative agreement with the Village of Bolingbrook to transfer flow from the
Company's to the Village's nearby facilities for treatment. If this agreement
with the Village is approved by the EPA and the Court, the Company's plant would
be converted to a flow transfer station. The Company's financial obligations
would be the same under either the plant improvement project or the flow
transfer project. The agreement with the Village of Bolingbrook is now pending
approval by the EPA and the court. As a regulated entity, the Company is
entitled to earn a fair rate of return on improvements that are placed in
service for the benefit of its customers. The Company believes that the cost of
the above discussed improvements will be recovered through customer rates.
Item 4. Submission of Matters to Vote of Security Holders
None in fourth quarter 1995.
<PAGE>
Executive Officers
Information as to Executive Officers of the Company as of January 31, 1996,
follows:
Name Age Current Position and Office
Leonard Tow 67 Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
Daryl A. Ferguson 57 President and Chief Operating
Officer
Robert J. DeSantis 40 Vice President and Treasurer
James P. Avery 39 Vice President, Energy
Richard A. Faust, Jr. 49 Vice President, Mohave County
J. Michael Love 44 Vice President, Corporate
Planning
Robert L. O'Brien 53 Vice President, Regulatory
Affairs
Livingston E. Ross 47 Vice President and Controller
David B. Sharkey 46 President, Electric
Lightwave, Inc.
Ronald E. Spears 47 Vice President,
Telecommunications
Ronald E. Walsh 56 Vice President,
Water/Wastewater
There is no family relationship between any of the officers of the
Registrant. The term of office of each of the foregoing officers of the
Registrant will continue until the next annual meeting of the Board of Directors
and until a successor has been elected and qualified.
LEONARD TOW has been associated with the Registrant since April 1989 as a
Director. In June 1990, he was elected Chairman of the Board and Chief Executive
Officer. In October 1991, he was appointed to the additional position of Chief
Financial Officer of the Registrant. He has also been a Director, Chief
Executive Officer and Chief Financial Officer of Century Communications Corp.
since its incorporation in 1973, and Chairman of its Board of Directors since
October 1989.
DARYL A. FERGUSON has been associated with the Registrant since July 1989. He
was Vice President, Administration from July 1989 through March 1990 and Senior
Vice President, Operations and Engineering from March 1990 through June 1990. He
has been President and Chief Operating Officer since June 1990. During the
period April 1987 through July 1989, he was President and Chief Executive
Officer of Microtecture Corporation. He is currently a Director of Centennial
Cellular Corp.
ROBERT J. DeSANTIS has been associated with the Registrant since January
1986. He was Assistant to the Treasurer through May 1986 and Assistant Treasurer
from June 1986 through September 1991. He has been Vice President and Treasurer
since October 1991.
JAMES P. AVERY has been associated with the Registrant since August 1981. He
was Project Manager, Electric through June 1988, Assistant Vice President,
Electric Operations from June 1988 through December 1990 and Vice President,
Electric from December 1990 through May 1994. He has been Vice President, Energy
since June 1994.
RICHARD A. FAUST, JR. has been associated with the Registrant since December
1990. He was associated with Louisiana General Services, Inc. from 1972 until
that Company was merged with the Registrant in December 1990. He served as Vice
President, General Counsel and Secretary of Louisiana General Services, Inc.
from March 1984 through May 1993. He was elected Vice President, Mohave County,
(Arizona) in June 1993.
J. MICHAEL LOVE has been associated with the Registrant since May 1990 and
from November 1984 through January 1988. He was Assistant Vice President,
Regulatory Affairs and Community Relations from June 1986 through January 1988.
He left the Registrant in January 1988 to become President and General Counsel
of Southern New Hampshire Water Company. He rejoined the Registrant in April
1990 and was Assistant Vice President, Corporate Planning from June 1990 through
March 1991. He has been Vice President, Corporate Planning since March 1991.
ROBERT L. O'BRIEN has been associated with the Registrant since March 1975.
He has been Vice President, Regulatory Affairs since June 1981.
<PAGE>
LIVINGSTON E. ROSS has been associated with the Registrant since August 1977.
He was Manager of Reporting from September 1984 through March 1988, Manager of
General Accounting from April 1988 through September 1990 and Assistant
Controller from October 1990 through November 1991. He has been Vice President
and Controller since December 1991.
DAVID B. SHARKEY has been associated with the Registrant since August 1994
and has been President of Electric Lightwave, Inc. since that date. Prior to
joining the Registrant, he was Vice President and General Manager of MobilMedia,
a wireless company headquartered in New Jersey from August 1989 through July
1994.
RONALD E. SPEARS has been associated with the Registrant since June 1995 and
has been Vice President, Telecommunications since that date. Prior to joining
the Registrant, he was Managing Director at Russell Reynolds Associates, an
executive recruiting firm from April 1994 to May 1995. He was Chairman and Chief
Executive Officer, and prior to that, President and Chief Operating Officer of
Videocart, Inc. from February 1991 to March 1994. He served as President, MCI
Midwest, an operating division of MCI Telecommunications from September 1984 to
January 1991.
RONALD E. WALSH has been associated with the Registrant since January 1986.
He was Attorney and Assistant Secretary from November 1987 through August 1992.
He has been Vice President, Water/Wastewater since August 1992.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock
Exchange under the symbols CZNA and CZNB for Series A and Series B,
respectively. The following table indicates the high and low prices
per share as taken from the daily quotations published in the "Wall
Street Journal" during the periods indicated. Prices have been
adjusted retroactively for subsequent stock dividends and the August
31, 1993 2-for-1 stock split, rounded to the nearest 1/8th. (See Note
7 of Notes to Consolidated Financial Statements.)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
1995:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series A $13 5/8 $11 3/4 $12 3/8 $10 1/4 $11 1/2 $10 5/8 $13 1/4 $10 5/8
Series B 13 5/8 11 3/4 12 3/8 10 1/2 11 1/2 10 3/4 13 3/8 10 5/8
1994:
Series A 16 1/8 13 1/8 14 7/8 12 1/2 13 5/8 12 3/8 13 11 3/4
Series B 16 1/4 13 14 7/8 12 1/2 13 5/8 12 3/8 13 11 7/8
1993:
Series A 15 3/4 12 16 1/2 14 1/4 16 3/8 11 7/8 17 3/4 14 3/8
Series B 15 3/4 12 1/8 16 1/2 14 1/8 16 3/8 11 7/8 17 5/8 14 3/8
1992:
Series A 11 1/8 9 3/8 10 3/4 9 7/8 12 1/8 9 5/8 13 10 3/4
Series B 10 7/8 9 3/8 10 3/4 9 1/2 12 1/4 9 1/2 13 10 3/4
</TABLE>
The December 29, 1995 prices were: Series A $12 7/8 high,
$12 5/8 low; Series B $12 7/8 high, $12 5/8 low. As of January
31, 1996, the approximate number of record security holders of the
Company's Common Stock Series A and Series B was 26,330 and 21,385,
respectively. This information was obtained from the Company's
transfer agent.
DIVIDENDS
Quarterly stock dividends declared and issued on both Common
Stock Series A and Series B were 1.5% for each the first and second
quarters and 1.6% for each the third and fourth quarters of 1995.
Quarterly stock dividends declared and issued on both Common Stock
Series A and Series B were 1.1% for the first quarter of 1994, 1.15%
for the second quarter of 1994, 1.3% for the third quarter of 1994 and
1.4% for the fourth quarter of 1994. An annual cash dividend
equivalent rate of 72 1/4 cents and 68 7/8 cents per share
(adjusted for all stock dividends paid subsequent to all dividends
declared through December 31, 1995 and rounded to the nearest
1/8th) was considered by the Company's Board of Directors in
establishing the Series A and Series B stock dividends during 1995 and
1994, respectively.
(See Note 7 of Notes to Consolidated Financial Statements.)
<PAGE>
Item 6. Selected Financial Data (In thousands, except for per-share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $1,069,032 $906,150 $613,099 $576,881 $545,025
Net income $159,536 $143,997 $125,630 $115,013 $112,354
Earnings per-share of Common
Stock Series A and Series B(1) $.73 $.72 $.63 $.59 $.58
Stock dividends declared
on Common Stock
Series A and Series B(2) 6.35% 5.04% 4.37% 5.61% 7.93%
Total assets $3,918,187 $3,576,566 $2,627,118 $1,887,981 $1,721,452
Long-term debt $1,187,000 $ 994,189 $ 547,673 $ 522,699 $ 484,021
</TABLE>
(1) Adjusted for subsequent stock dividends and splits; no adjustment
has been made for the Company's 1.6% first quarter 1996 stock
dividend because the effect is immaterial.
(2) Annual rate of quarterly stock dividends compounded.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources
In 1995, the Company's primary source of funds was from
operations. Funds requisitioned from the 1995, 1994, 1993 and
1991 Series Industrial Development Revenue Bond construction fund
trust accounts were used to pay for the construction of
qualifying utility plant. Commercial paper notes payable in the
amount of $156,800,000 were outstanding as of December 31, 1995.
$140,650,000 of such commercial paper was classified as
short-term debt as it was issued to temporarily and partially
fund the acquisition of the GTE and ALLTEL Telecommunications
Properties (see Note 3) and was to be repaid with proceeds from
the issuance of equity securities. All such short-term debt has
been repaid with equity issuance proceeds.
On May 3, 1995, the Company arranged for the issuance of
$13,550,000 of Industrial Development Revenue Bonds; the bonds
were issued as demand purchase bonds bearing interest at 6.2% and
maturing on May 1, 2030. On May 12, 1995 and January 22, 1996,
Citizens Utilities Rural Telephone Company, Inc., a subsidiary of
the Company, under it's Rural Telephone Bank Loan Contract, was
advanced $8,793,000 and $4,464,000, respectively. Such funds bear
an initial interest rate of 6.52% and 5.83%, respectively, and
have an ultimate maturity date of December 31, 2027. On January
18, 1996, $10,000,000 of the Company's 1988 Series Special
Purpose Revenue Bonds, originally issued as 7.25% demand purchase
bonds, were converted and remarketed as money market municipals,
initially bearing interest at a rate of 3.31% and maturing on
September 1, 2018.
On June 15, 1995, the Company issued $125,000,000 of
debentures at a price of 99.918% with an interest rate of 7.45%
and a maturity date of July 1, 2035. On October 20, 1995, the
Company issued $150,000,000 of debentures at a price of 99.125%
with an interest rate of 7% and a maturity date of November 1,
2025.
On January 22, 1996, a subsidiary of the Company issued
4,025,000 shares of 5% Equity Providing Preferred Income
Convertible Securities ("EPPICS") having a liquidation preference
of $50 per security and a maturity date of January 15, 2036. Each
security is initially convertible into 3.252 shares of the
Company's Common Stock Series A at a conversion price of $15.375
per share. The $196,722,000 in net proceeds from the sale of
these securities were used to repay short-term debt, permanently
fund a portion of the ALLTEL Telecommunications Properties to be
acquired, and for other general corporate purposes.
On January 30, 1995, the Company, pursuant to an underwritten
public offering, issued 19,000,000 shares of its Common Stock
Series A at an issuance price of $13 3/8 per share and realized
$244,200,000 in net proceeds. These proceeds were used to repay
short-term debt.
<PAGE>
On April 28, 1995, 31,928 shares of Series B Common Stock were
issued to effect the merger of Douglasville Water Company into a
subsidiary of the Company. On July 17, 1995, Flex Communications
was merged into the Company requiring the issuance of 855,953
shares of Citizens Series B Common Stock. In conjunction with the
acquisitions of the ALLTEL Telecommunications Properties, the
Company assumed $41,447,000 in debt at a weighted average
interest rate of 6.59%.
The Company considers its operating cash flows and its ability
to raise debt and equity capital as the principal indicators of
its liquidity. Although working capital is not considered to be
an indicator of the Company's liquidity, the Company experienced
an increase in its working capital at December 31, 1995. The
increase is primarily due to the repayment of short-term debt
from proceeds from the maturity and sale of investments and the
issuance of equity securities. The Company has committed lines of
credit with commercial banks under which it may borrow up to
$600,000,000. There were no amounts outstanding under these lines
at December 31, 1995.
In 1995, the Company made a $4,200,000
investment in and entered into definitive agreements with
Hungarian Telephone and Cable Corp. ("HTCC"), a Delaware
corporation. Pursuant to these agreements (i) the Company has
rights to purchase up to 54% of HTCC common stock, (ii) provides
certain management services to HTCC on a cost-plus basis, (iii)
has the right to and has designated one member of the HTCC Board
of Directors, and (iv) has provided HTCC with guarantees and
financial support. HTCC presently controls the rights to own,
operate and expand certain telecommunications services in certain
regions of Hungary. The management services fee payable by HTCC
to the Company is the greater of 5% of adjusted gross revenues of
HTCC or a monthly fixed amount. In addition, expenses incurred by
the Company in providing such services, including certain
allocable overhead items, are to be reimbursed by HTCC. A
subsidiary of the Company is the guarantor of a $33,200,000 bank
loan to HTCC. The Company has agreed to provide HTCC with up to
$20,000,000 of additional financial support. The Company has been
compensated for such guarantees and financial support. The
Company's investment in HTCC is accounted for using the cost
method of accounting.
Capital expenditures for the years 1995, 1994, and
1993 were $266,963,000, and $311,420,000, and $182,480,000,
respectively, and for 1996 are expected to be approximately
$340,000,000. These expenditures were, and in 1996 will be,
for utility and related facilities and properties.
The Company anticipates that the funds necessary for its 1996
capital expenditures will be provided from operations; from 1993,
1994 and 1995 Series Industrial Development Revenue Bond
construction fund trust account requisitions; from Rural
Telephone Bank loan contract advances; from commercial paper
notes payable; from parties desiring utility service; from debt,
equity and other financings at appropriate times; and, if deemed
advantageous, from short-term borrowings under bank credit
facilities.
During 1995, the Company was authorized increases in annual
revenues for properties in Hawaii, Illinois, Ohio and Vermont
totaling $13,445,000. The Company has requests for additional
increases pending before regulatory commissions in Arizona,
Hawaii, Louisiana and Pennsylvania.
Regulatory Matters
In September 1992, the EPA filed a complaint with the United
States District Court for the Northern District of Illinois
relating to alleged violations by the Company's Illinois
subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company settled this
action on March 21, 1995 and paid a $490,000 fine. Under the
settlement, the Company also agreed to construct plant
improvements, with an estimated cost of $2,200,000, which would
be required in order to comply with new discharge limits provided
for by the settlement. Shortly after the action was settled, the
Company entered into a tentative agreement with the Village of
Bolingbrook to transfer flow from the Company's to the Village's
nearby facilities for treatment. If this agreement with the
Village is approved by the EPA and the Court, the Company's plant
would be converted to a flow transfer station. The Company's
financial obligations would be the same under either the plant
improvement project or the flow transfer project. The agreement
with the Village of Bolingbrook is now pending approval by the
EPA and the court. As a regulated entity, the Company is entitled
to earn a fair rate of return on improvements that are placed in
service for the benefit of its customers. The Company believes
that the cost of the above discussed improvements will be
recovered through customer rates.
<PAGE>
Various state regulatory agencies, state legislatures and the
federal government have initiated proceedings to promote the
development of competition in telecommunications markets. These
proceedings are focused on removing the regulatory and legal
barriers to competitive entry into the interLATA toll, intraLATA
toll and local exchange markets and developing rules to govern
the relationship between competitors in these markets.
Simultaneously, many states are investigating or have implemented
procedures for local exchange companies to enter into incentive
regulatory frameworks ("IRF") as an alternative to traditional
rate of return regulation and/or classifying services on the
basis of the presence of competition and allowing deregulation or
flexible pricing regulation for the services deemed competitive.
Local exchange competition has been authorized in the following
states in which the Company currently provides local exchange
service: Arizona, California, New York, Oregon, Tennessee, Utah
and West Virginia.
The Company continues to expand its subsidiary, Electric
Lightwave, Inc. ("ELI"), a competitive access provider in
Arizona, California, Oregon, Utah and Washington. Through ELI,
the Company has been granted authority in Washington, Utah and
Oregon to provide competitive local exchange service. The
Company completed construction of a fiber-optic route from Las
Vegas, Nevada to Phoenix, Arizona which provides the Company
with fiber optic capacity for its long distance operations as
well as for other telecommunications carriers.
On November 8, 1995, the California Public Utilities
Commission issued a final order approving a restructuring of
Citizens Telecom of California's ("CTCC") rates and an Incentive
Regulatory Framework ("IRF"). The restructured rates allow CTCC
to compete more effectively. Under the IRF, CTCC can earn and
keep up to 1.5% above its authorized rate of return while earned
returns greater than 1.5% and up to 5% above its authorized rate
of return will be shared equally with customers.
There have been federal and state regulatory activities with
the aim of creating a more competitive environment in the
electric utility industry. These federal and state regulatory
activities are still in the investigation stage. The Company
anticipates no material adverse impact on its electric sector
should the industry be opened to competition since the Company is
not a large generator of electric power and serves primarily
residential customers. The advent of competition would most
likely provide opportunities for expansion. In response to
regulatory initiatives, the Company's electric sector is
proceeding with demand-side management programs and integrated
resource planning techniques designed to promote the most
efficient use of electricity and to reduce the environmental
impacts associated with new generation facilities.
In 1994, the Company filed for a $19,153,000 rate increase
with the Hawaii Public Utilities Commission ("HPUC"). Part of the
requested increase is for the recovery of restoration and repair
costs associated with Hurricane Iniki. In an effort to reduce the
rate impact on its customers, the Company subsequently filed an
application with the HPUC to recover $8,000,000 of the
$19,153,000 through a statewide surcharge to partially recover
Iniki restoration and repair costs under the provisions of
Subsection 269-16.3 of the Hawaii Revised Statutes. If the
HPUC approves the surcharge application, customers of all
electric utility companies in Hawaii would pay a portion of the
approved Iniki restoration and repair costs over a five year
period and the Company's rate increase request will be
reduced by $8,000,000. The HPUC issued an Interim Decision and
Order which took effect on June 15, 1995 granting the Company a
$5,983,000 interim increase in annual revenues. The second
phase of the requested rate increase and the statewide
surcharge is expected to be included in a final order from
the HPUC. The Company expects a final order in the first half
of 1996.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"),
effective for fiscal years beginning after December 15, 1995. The
Company will adopt SFAS 121 in the first quarter of 1996. Based
on current facts and circumstances, the Company believes that
SFAS 121 will not adversely affect the Company.
<PAGE>
In December 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning
after December 15, 1995. Under SFAS 123, the Company may elect
either a "fair value" based method or the current "intrinsic
value" based method of accounting for its stock-based
compensation arrangements. If the Company were to adopt the "fair
value" based method, the Company would be required to charge
compensation expense for all of its stock-based compensation
arrangements. If the Company were to elect the "intrinsic value"
based method, the Company would be required to disclose in the
footnotes to the financial statements net income and earnings per
share computed under the "fair value" based method. The Company
will elect the "intrinsic value" based method. Accordingly, the
adoption of SFAS 123 will not impact the Company's results of
operations or financial condition.
(b) Results of Operations
Revenues
Telecommunications revenues increased $159,872,000, or 35%, in
1995 and increased $279,378,000, or 157%, in 1994. These
increases are primarily attributable to the acquired GTE and
ALLTEL Telecommunications Properties. The increase in revenues in
1995 was offset in part by the loss of $38,000,000 of
discontinued subsidy revenues from Pacific Bell which had been
received annually through the end of 1994.
Natural gas revenues had a net decrease of $11,038,000, or 5%,
in 1995 primarily due to lower average revenue per MCF of gas
sold which resulted from pass-ons to customers of lower average
gas costs from suppliers; this decrease was partially offset by
increased consumption. Natural gas revenues decreased $2,952,000,
or 1%, in 1994 compared to 1993 due to a decrease in
transportation revenues; this decrease was partially offset by
increased residential and commercial revenues from the Company's
Northern Arizona Gas operations and increased industrial gas
revenues. Pass-ons are required under tariff provisions and do
not affect net income.
The Company's electric sector revenues had a net increase of
$7,411,000, or 4%, in 1995 and $9,718,000, or 6% in 1994
primarily due to increased consumption and rate increases,
partially offset by pass-ons to customers of lower commodity
prices.
Revenues earned by the Company's water/wastewater treatment
sector increased $6,637,000, or 9%, in 1995, primarily due to
increased consumption and rate increases. In 1994, revenues
increased $6,907,000, or 11%, due to rate increases of $4,800,000
and $2,800,000 from acquired properties.
Expenses
Natural gas purchased costs decreased $8,034,000, or 7%, in
1995 and $1,305,000, or 1%, in 1994 primarily due to a decrease
in supplier prices. Under tariff provisions, increases and
decreases in the Company's wholesale costs of electric energy,
fuel oil and natural gas purchased are passed on to customers.
Electric energy purchased costs for 1995 totaled $68,900,000,
an increase of $2,185,000, or 3% ,over the 1994 amount of
$66,715,000 which was a $4,784,000, or 8%, increase over the 1993
cost of $61,931,000. The increase in electric energy purchased
was primarily due to customer growth. The increased cost of
electric energy purchased in 1994 was primarily due to increased
customer demand. Fuel oil purchased in 1995 of $16,268,000
increased $2,052,000, or 14%, from the 1994 amount of $14,216,000
primarily due to an increase in supplier prices and increased
volume to satisfy increased consumption. Fuel oil purchased cost
in 1994 decreased $679,000, or 5%, from the 1993 amount of
$14,895,000 due to a decrease in supplier prices.
Operating and maintenance expenses increased $87,333,000, or
28%, in 1995 and $139,122,000, or 83%, in 1994 primarily due to
operating expenses related to the telecommunications properties
acquired.
Depreciation expense increased $43,760,000, or 38%, in 1995
and $60,477,000, or 111%, in 1994 primarily due to increases in
depreciable plant assets as a result of acquisitions.
Taxes other than income increased $9,537,000, or 16%, in 1995
and $23,688,000, or 67% in 1994 primarily due to increased taxes
on the newly acquired telecommunications properties.
<PAGE>
Interest expense for the year ended December 31, 1995
increased $15,031,000, or 21%, in 1995 and $35,313,000, or 94%,
in 1994 primarily due to interest paid on the additional debt
securities issued to finance the acquisitions of
telecommunications properties as well as increased Industrial
Development Revenue Bonds.
Cost increases, including those due to inflation, are expected
to be offset in due course by increases in revenues obtained
under established regulatory procedures.
Investment Income
Investment income increased $1,213,000, or 3%, in 1995
primarily due to gains realized on investments sold to
permanently fund telecommunications acquisitions. Investment
income decreased $1,643,000, or 4%, in 1994 due to the
liquidation of investments to fund the acquisitions of the
telecommunications properties.
Net Income and Earnings Per Share
Net Income increased $15,539,000, or 11%, in 1995 despite the
loss of $23,000,000 of net income reported in 1994 which was
derived from the discontinued subsidy revenues from Pacific Bell
which had been received annually through the end of 1994.
Earnings per share increased $.01 in 1995 despite the loss of
$.12 per share reported in 1994 which was derived from the
discontinued Pacific Bell subsidy and despite the issuance in
January 1995 of 19,000,000 additional shares of Common Stock
Series A.
Item 8. Financial Statements and Supplementary Data
The following documents are filed as part of this Report:
1. Financial Statements:
See Index on page F-1.
2. Supplementary Data:
Quarterly Financial Data is included in the Financial
Statements (see 1. above).
Item 9. Disagreements with Auditors on Accounting and Financial Disclosure
None
PART III
The Company intends to file with the Commission a definitive proxy statement for
the 1996 Annual Meeting of Stockholders pursuant to Regulation 14A not later
than 120 days after December 31, 1995. The information called for by this Part
III is incorporated by reference to that proxy statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this Report:
Exhibit
No. Description
3.1 Certificate of Incorporation
3.2 By-laws
3.2.1 Amendment dated April 14, 1992, to the By-laws
3.200.1 Restated Certificate of Incorporation of Citizens Utilities
Company, with all amendments to March 4, 1996
3.200.2 By-laws of the Company, as amended to-date of Citizens
Utilities Company, with all amendments to March 4, 1996
4.100.1 Copy of Indenture of Securities, dated as of August 15,
1991, to Chemical Bank, as Trustee
4.100.2 First Supplemental
Indenture, dated August 15, 1991
4.100.3 Letter of Representations, dated August 20, 1991, from
Citizens Utilities Company and Chemical Bank, as Trustee, to
Depository Trust Company ("DTC") for deposit of securities with
DTC
4.100.4 Second Supplemental Indenture, dated January 15, 1992, to
Chemical Bank, as Trustee
4.100.5 Letter of Representations,
dated January 29, 1992, from Citizens Utilities Company and
Chemical Bank, as Trustee, to DTC, for deposit of securities
with DTC
4.100.6 Third Supplemental Indenture, dated April 15, 1994, to Chemical
Bank, as Trustee.
4.100.7 Fourth Supplemental Indenture, dated October 1, 1994, to
Chemical Bank, as Trustee.
10.1 Incentive Deferred Compensation Plan, dated April 16, 1991
10.6 Deferred Compensation Plans for Directors, dated November 26,
1984 and December 10, 1984
10.6.1 Directors' Retirement Plan, effective January 1, 1989
10.6.2 Non-Employee Directors' Deferred Fee Equity Plan dated as of
June 28, 1994
10.9 Management Equity Incentive Plan, effective June 22, 1990
10.13 LGS Supplemental Executive Retirement Plan
10.16 Employment Agreement between Citizens Utilities Company and
Leonard Tow, as amended effective September 28, 1995
10.17 1992 Employee Stock Purchase Plan
10.18 Amendment dated May 21, 1993, to the 1992 Employee Stock
Purchase Plan
10.20 Asset Purchase Agreements, dated November 28, 1994
12. Computation of ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by
reference)
21. Subsidiaries of the Registrant
23. Auditors' Consent
24. Powers of Attorney
27. Financial Data Schedule
Exhibits 10.1, 10.6, 10.6.1, 10.6.2, 10.9, 10.16, 10.17 and 10.18
are management contract or compensatory plans or arrangements.
The Company agrees to furnish to the Commission upon request
copies of the Realty and Chattel Mortgage, dated as of March 1, 1965, made by
Citizens Utilities Rural Company, Inc., to the United States of America
(the Rural Electrification Administration and Rural Telephone Bank) and the
Mortgage Notes which that mortgage secures; and the several subsequent
supplemental Mortgages and Mortgage Notes; copies of the instruments
governing the long-term debt of Louisiana General Services, Inc.; and
copies of separate loan agreements and indentures governing various Industrial
development revenue bonds; and copies of documents relating to indebtedness of
subsidiaries acquired during 1995.
<PAGE>
Exhibit number 10.6 is incorporated by reference to the same
exhibit designation in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1984. Exhibit number 10.6.1 is incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989. Exhibit number 10.9 is incorporated by
reference to Appendix A to the Registrant's Proxy Statement dated May 14, 1990.
Exhibit numbers 10.10, 10.11, 10.12 and 10.13 are incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990. Exhibit numbers 4.100.1, 4.100.2 and 4.100.3
are incorporated by reference to the same exhibit designation in the
Registrant's Quarterly Report on Form 10-Q for the nine months ended September
30, 1991. Exhibit numbers 3.1, 3.2, 4.100.4, 4.100.5, 10.1 and 10.16 are
incorporated by reference to the same exhibit designation in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991. Exhibit number
3.2.1 and 10.17 is incorporated by reference to the same exhibit designation in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992. Exhibit number 10.18 is incorporated by reference to the Registrant's
Proxy Statement, dated March 31, 1993. Exhibit number 10.19 is incorporated by
reference to exhibit number 2.1 in the Registrant's Form 8-K Current Report
filed June 30, 1993. Exhibit numbers 3.200.1 and 3.200.2 are incorporated by
reference to the same exhibit designation in the Registrant's Form S-3 filed
December 16, 1993. Exhibit numbers 4.100.6 and 4.100.7 are incorporated by
reference to the Registrant's Form 8-K Current Reports filed on July 5, 1994 and
January 3, 1995, respectively. Exhibit number 10.20 is incorporated by
reference to the same exhibit designation in the Registrant's Form 10-K for the
year ended December 31, 1994. Exhibit number 10.6.2 is incorporated by
reference to the Registrant's Proxy Statement, dated April 4, 1995.
(b) No Form 8-K was required during the three months ended December 31,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIZENS UTILITIES COMPANY
(Registrant)
By:___________________________________________
Leonard Tow
Chairman of the Board; Chief Executive Officer;
Chief Financial Officer; Member, Executive Committee
and Director
March 6, 1996
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 6th day of March 1996.
Signature Title
________________________________ Vice President and Treasurer
(Robert J. DeSantis)
________________________________ Vice President and Controller
(Livingston E. Ross)
Norman I. Botwinik* Director
- --------------------------------
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee and
- -------------------------------- Director
(Aaron I. Fleischman)
James C. Goodale* Director
- --------------------------------
(James C. Goodale)
Stanley Harfenist* Member, Executive Committee and
- -------------------------------- Director
(Stanley Harfenist)
Andrew N. Heine* Director
- --------------------------------
(Andrew N. Heine)
Elwood A. Rickless* Director
- --------------------------------
(Elwood A. Rickless)
John L. Schroeder* Member, Executive Committee and
- -------------------------------- Director
(John L. Schroeder)
Robert D. Siff* Director
- --------------------------------
(Robert D. Siff)
Robert A. Stanger* Director
- --------------------------------
(Robert A. Stanger)
Edwin Tornberg* Director
- --------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- --------------------------------
(Claire L. Tow)
Charles H. Symington, Jr* Director
- --------------------------------
(Charles H. Symington, Jr.)
*By: ---------------------------
(Robert J. DeSantis)
Attorney-in-Fact
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1995, 1994 and 1993 F-3
Consolidated statements of income for the years ended
December 31, 1995, 1994 and 1993 F-4
Consolidated statements of shareholders' equity for the years
ended December 31, 1995, 1994 and 1993 F-5
Consolidated statements of cash flows for the years
ended December 31, 1995, 1994 and 1993 F-6
Notes to consolidated financial statements F-7 - F-23
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the consolidated financial statements of Citizens Utilities
Company and subsidiaries as of December 31, 1995, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Utilities
Company and subsidiaries at December 31, 1995, 1994 and 1993, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 1, 1996
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
ASSETS
Current assets:
<S> <C> <C> <C>
Cash $ 17,922 $ 14,224 $ 21,738
Temporary investments 0 108,818 89,752
Accounts receivable:
Utility service 146,561 134,510 99,684
Other 55,991 34,713 15,088
Less allowance for doubtful accounts 2,739 2,428 459
--------------- -------------- ---------------
Total accounts receivable 199,813 166,795 114,313
Materials and supplies 18,191 18,330 10,061
Other current assets 16,776 5,887 4,873
-------------- -------------- --------------
Total current assets 252,702 314,054 240,737
------------- ------------ ------------
Property, plant and equipment 4,187,354 3,583,723 2,153,891
Less accumulated depreciation 1,279,324 1,014,068 461,924
------------ ----------- ------------
Net property, plant and equipment 2,908,030 2,569,655 1,691,967
------------ ----------- -----------
Investments 329,090 325,011 411,022
Regulatory assets 180,572 177,414 146,207
Deferred debits and other assets 247,793 190,432 137,185
------------- ------------ ------------
Total assets $ 3,918,187 $3,576,566 $2,627,118
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 140,650 $ 515,200 $ 380,000
Long-term debt due within one year 3,865 13,986 1,620
Accounts payable 178,384 122,404 84,015
Income taxes accrued 72,494 92,366 82,632
Interest accrued 22,527 15,841 12,731
Customers' deposits 20,501 19,919 19,436
Other current liabilities 65,257 72,105 47,791
-------------- -------------- -------------
Total current liabilities 503,678 851,821 628,225
Deferred income taxes 314,094 248,150 213,471
Regulatory liabilities 28,279 30,830 28,376
Deferred credits 101,300 77,950 50,634
Customer advances for construction 150,000 145,150 137,012
Contributions in aid of construction 73,923 71,580 47,241
Long-term debt 1,187,000 994,189 547,673
Shareholders' equity 1,559,913 1,156,896 974,486
------------- --------------- -------------
Total liabilities and shareholders' equity $ 3,918,187 $ 3,576,566 $ 2,627,118
============ =============== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands, except for per-share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Revenues:
<S> <C> <C> <C>
Telecommunications $616,747 $456,875 $177,497
Natural gas 197,902 208,940 211,892
Electric 175,351 167,940 158,222
Water/Wastewater 79,032 72,395 65,488
--------- ---------- ---------
Total revenues 1,069,032 906,150 613,099
---------- --------- --------
Operating expenses:
Natural gas purchased 108,385 116,419 117,724
Electric energy and fuel oil purchased 85,168 80,931 76,826
Operating expenses 306,734 244,877 142,718
Maintenance expenses 87,255 61,779 24,816
Depreciation 158,935 115,175 54,698
Taxes other than income 68,382 58,845 35,157
--------- ---------- ---------
Total operating expenses 814,859 678,026 451,939
-------- --------- --------
Income from operations 254,173 228,124 161,160
Investment income 41,667 40,454 42,097
Other income - net 18,288 12,486 12,102
Interest expense 87,775 72,744 37,431
--------- ---------- ---------
Income before income taxes 226,353 208,320 177,928
Income taxes 66,817 64,323 52,298
--------- ---------- ----------
Net income $159,536 $143,997 $125,630
======== ======== ========
Earnings per share of Common Stock
Series A and Series B $.73 $.72 $.63
==== ==== ====
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands, except for per-share amounts)
<TABLE>
<CAPTION>
Unrealized gain
Additional on Available-
Common Stock ($.25) Paid-in Retained for-Sale
Series A Series B Capital Earnings Securities Total
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 $ 16,039 $ 5,651 $ 582,299 $ 233,282 $ 0 $ 837,271
Acquisitions 155 1,002 2,914 4,071
Net income 125,630 125,630
Stock dividends in shares of
Common Stock Series A and
Series B 1,029 387 129,963 (131,594) (215)
Stock split (2 for 1) 16,155 6,036 (22,191) 0
Stock plans 114 7,615 7,729
Conversions of Series A to Series B (776) 776 0
--------- --------- ---------- --------- ---------- -----------
Balance December 31, 1993 $ 32,447 $ 13,119 $ 698,688 $230,232 $ 0 $ 974,486
--------- --------- ---------- ---------- ---------- -----------
Acquisitions 126 4,646 3,231 8,003
Net income 143,997 143,997
Stock dividends in shares of
Common Stock Series A and
Series B 1,621 686 137,736 (140,043) 0
Stock plans 88 281 20,911 21,280
Conversions of Series A to Series B (570) 570 0
Change in unrealized gain on
securities classified as available-
for-sale, net of income taxes 9,130 9,130
--------- -------- ---------- --------- --------- ----------
Balance December 31, 1994 $ 33,586 $ 14,782 $ 861,981 $ 237,417 $ 9,130 $1,156,896
--------- -------- ---------- --------- --------- ----------
Acquisitions 222 (4,485) 374 (3,889)
Net income 159,536 159,536
Stock dividends in shares of
Common Stock Series A and
Series B 2,374 1,024 158,693 (162,091) 0
Common stock buybacks (115) (352) (21,561) (22,028)
Stock issuance 4,750 238,830 243,580
Stock plans 150 475 30,236 30,861
Conversions of Series A to Series B (1,906) 1,906 0
Change in unrealized gain on
securities classified as available-
for-sale, net of income taxes (5,043) (5,043)
--------- ---------- ---------- ---------- --------- -----------
Balance December 31, 1995 $38,839 $18,057 $1,263,694 $235,236 $ 4,087 $1,559,913
========= ========== ========== ========== ========= ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net cash provided by operating activities $ 338,374 $ 262,316 $ 194,949
--------- --------- ---------
Cash flows used for investing activities:
Business acquisitions (223,926) (700,222) (481,257)
Construction expenditures (245,004) (263,162) (168,349).
Securities purchased (86,058) ( 18,219) (254,203)
Securities sold 92,224 23,478 269,624
Securities matured 120,691 89,885 54,465
Other 55 (13,795) (7,086)
--------- ---------- -----------
(342,018) (882,035) (586,806)
---------- --------- ----------
Cash flows from financing activities:
Long-term debt borrowings 321,280 458,589 34,733
Long-term debt principal payments (192,030) ( 1,268) (26,644).
Short-term debt (repayments) borrowings (374,550) 135,200 380,000
Issuance of common stock 272,687 18,465 3,780
Common stock buybacks (22,028) 0 0
Other 1,983 1,219 1,974
----------- -------- -----------
7,342 612,205 393,843
----------- --------- --------
Increase (decrease) in cash 3,698 (7,514) 1,986
Cash at January 1, 14,224 21,738 19,752
----------- --------- --------
Cash at December 31, $ 17,922 $ 14,224 $ 21,738
=========== ========= ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARES
Notes to Financial Statements
(1) Summary of Significant Accounting Policies:
(a) Description of Business:
Citizens Utilities Company is a diversified operating public utility
providing telecommunications , electric distribution, natural gas
transmission and distribution and water/wastewater treatment services
to nearly 1,600,000 customer connections in areas of nineteen states
in the United States. The Company is not dependent upon any single
customer, geographic area or upon any one type of utility service for
its revenues.
(b) Principles of Consolidation and Use of Estimates:
The consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and include
the accounts of Citizens Utilities Company and all of its
subsidiaries, after elimination of intercompany balances and
transactions. Certain reclassifications of balances previously
reported have been made to conform to current presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Revenues:
The Company records revenues from telecommunications, natural gas,
electric, and water/wastewater treatment customers when billed. The
Company accrues unbilled revenues earned from the dates customers
were last billed to the end of the accounting period. Natural gas,
electric and water/wastewater treatment customers are billed on a
cycle basis based on monthly meter readings.
Certain telecommunications toll and access services revenues are
estimated under cost separation procedures that base revenues on
current operating costs and investments in facilities to provide such
services.
(d) Construction Costs and Maintenance Expense:
Property, plant and equipment are stated at original cost,
including general overhead and an allowance for funds used during
construction ("AFUDC"). AFUDC represents the borrowing costs and a
return on common equity of funds used to finance construction. AFUDC
is capitalized as a component of additions to property, plant and
equipment and is credited to income. AFUDC does not represent current
cash earnings; however, under established regulatory rate-making
practices, after the related plant is placed in service, the Company
is permitted to include in the rates charged for utility services a
fair return on and depreciation of such AFUDC included in plant in
service. The amount relating to equity is included in other income
($10,783,000, $11,402,000 and $10,123,000 for 1995, 1994 and 1993,
respectively) and the amount relating to borrowings is included as a
reduction of interest expense ($4,193,000, $3,031,000 and $2,678,000
for 1995, 1994 and 1993, respectively). The weighted average rates
used to calculate AFUDC were 11% in 1995 and 12% in 1994 and 1993.
Maintenance and repairs are charged to operating expenses as
incurred. The book value, net of salvage, of routine property, plant
and equipment dispositions is charged against accumulated
depreciation.
(e) Depreciation Expense:
Depreciation expense, calculated using the straight-line method, is
based upon the estimated service lives of various classifications of
property, plant and equipment and represented approximately 4% of the
gross depreciable property, plant and equipment for 1995, 1994 and
1993.
<PAGE>
(f) Regulatory Assets and Liabilities:
The Company's regulated operations are subject to the provisions of
Statement of Financial Accounting Standards ("SFAS") 71; "Accounting
for the Effects of Certain Types of Regulation". SFAS 71 requires
regulated entities to record regulatory assets and liabilities as a
result of actions of regulators. Regulatory assets of $25,006,000,
$24,669,000 and $1,601,000 at December 31, 1995, 1994 and 1993,
respectively, were related to Postretirement Benefits Other than
Pensions (see Note 13). Regulatory assets of $155,566,000,
$152,745,000 and $143,813,000 and regulatory liabilities of
$28,279,000, $30,830,000 and $28,376,000 at December 31, 1995, 1994
and 1993, respectively, were recorded to offset deferred income taxes
(see note 1(i)).
The Company continuously monitors the applicability of SFAS 71 to
its regulated operations. SFAS 71 may, at some future date, be
deemed inapplicable due to changes in the regulatory and competitive
environments and/or a decision by the Company to accelerate
deployment of new technology. If the Company were to discontinue the
application of SFAS 71 to one or more of its regulated operations,
the Company would be required to write off its regulatory assets and
regulatory liabilities associated with such operation(s) and
would be required to adjust the carrying amount of any property,
plant and equipment that would be deemed not recoverable. The
Company believes its regulated operations continue to meet the
criteria for SFAS 71 and that the carrying value of its property,
plant and equipment is recoverable in accordance with established
rate-making practices.
(g) Accounting for Investments, Temporary Investments and Short-Term
Debt:
Investments include high credit quality, short- and intermediate-
term fixed-income securities (primarily state and municipal
debt obligations) and equity securities. The Company adopted SFAS
115, "Accounting for Certain Investments in Debt and Equity
Securities" as of January 1, 1994. Under SFAS 115, the Company is
required to classify its investments at acquisition as available-
for-sale, held-to-maturity or trading. The Company does not invest
in securities which would be designated as trading. Prior to
the adoption of SFAS 115, fixed income securities were
stated at amortized cost and marketable equity securities were
stated at the lower of cost or market.
Securities which the Company will hold for an indefinite period of
time, but which might be sold in the future as changes in market
conditions or economic factors occur, are classified as
available-for-sale and are carried at estimated fair market value.
Net aggregate unrealized gains and losses related to such securities,
net of taxes, are included as a separate component of Shareholders'
equity. Securities for which the Company has the intent and ability
to hold to maturity are designated as held-to-maturity and are
carried at amortized cost, adjusted for amortization of premiums and
accretion of discounts over the period to maturity. Interest,
dividends and gains and losses realized on sales of securities are
reported in Investment income.
Temporary investments in 1994 and 1993 represented investments in
state and municipal securities which matured in less than one year,
the proceeds of which were used to repay a portion of the short-term
debt issued to partially and temporarily fund the acquisition of the
GTE and ALLTEL Telecommunications Properties (see Note 3). Such
investments were considered held-to-maturity and carried at
amortized cost. Short-term debt outstanding was issued in the form
of commercial paper notes payable to temporarily and partially
fund the acquisition of the telecommunications properties. This
short-term debt had a weighted average interest rate of 5.73% at
December 31, 1995 and was repaid in early 1996 with proceeds
from the issuance of Equity Providing Preferred Income Convertible
Securities (see Note 7).
<PAGE>
(h) Investment in Centennial Cellular Corp.:
The Company recorded its initial investment in 102,187 shares of
Centennial Cellular Corp. ("Centennial") Convertible Redeemable
Preferred Stock (the "Preferred Security") at $49,842,000 and
1,367,099 shares of Centennial Class B Common Stock at $19,826,000
which in the aggregate represented the historical cost of the
Company's investment in Citizens Cellular Company, prior to its
merger with Century Cellular Corp. During 1994, the Company purchased
615,195 additional shares of Centennial Class B Common Stock for
$8,613,000 pursuant to a Centennial rights offering.
The terms of the Preferred Security provide that the Preferred
Security may be converted by the holder into Centennial common
stock and accretes a liquidation value preference at a fixed
dividend rate of 7.5%, compounded quarterly, on an initial
liquidation value preference of $125,700,000 until the Preferred
Security reaches a liquidation value preference of $186,000,000 on
August 31, 1996. Commencing on September 1, 1996, Centennial
may elect to pay an 8.5% cash dividend on the Preferred Security's
$186,000,000 liquidation value preference or to redeem the
Preferred Security for $186,000,000 in cash or in Centennial
common stock. The Preferred Security is mandatorily redeemable
on August 30, 2006.
The Company recognizes the non-cash accretion as it is earned
in each period as investment income and increases the book value
of its investment in Centennial by the same amount. The
liquidation value preference earned on the Preferred Security for
1995, 1994 and 1993 was $14,353,000, $13,481,000 and
$9,594,000. From inception through December 31, 1995, $48,794,000 of
such accretion has been accounted for in this manner. Pursuant to
SFAS 115, beginning January 1, 1994, the investment in the Centennial
Class B Common Stock has been classified as available-for-sale and is
carried at fair market value while the Preferred Security has been
classified as held-to-maturity and is carried at amortized cost. The
fair market value of the Centennial Class B Common Stock at December
31, 1995 and 1994, was $33,947,000 and $33,699,000, respectively.
On a quarterly basis, the Company assesses whether the book value
of the Preferred Security can be realized by comparing such book
value to the market value of Centennial's common equity and by
evaluating other relevant indicators of realizability including
Centennial's ability to redeem the Preferred Security. The carrying
value of the Preferred Security would be deemed impaired to the
extent that such carrying value exceeds the estimated realizability
of the Preferred Security based on all existing facts and
circumstances including the Company's assessment of its ability to
realize the carrying value of the Preferred Security through
mandatory redemption. The Company believes it can realize its
investment in Centennial either by cash redemption by the issuer
funded through refinancing by the issuer, by temporary conversion
to common equity securities followed by the sale of the common
equity securities, or by sale of its current investment holdings.
(i) Income Taxes, Deferred Income Taxes and Investment Tax Credits:
The Company and its subsidiaries are included in a
consolidated federal income tax return. The Company utilizes
the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes
reflect the tax effect of temporary differences between the
financial statement and the tax bases of assets and liabilities
using presently enacted tax rates. Regulatory assets and
liabilities represent income tax benefits previously flowed
through to customers and from the allowance for funds used during
construction, the effects of tax law changes and the tax benefit
associated with unamortized deferred investment tax credits.
These regulatory assets and liabilities represent the
probable net increase in revenues that will be reflected through
future ratemaking proceedings.
The investment tax credits relating to utility properties, as
defined by applicable regulatory authorities, have been deferred
and are being amortized to income over the lives of the related
properties.
(j) Earnings Per Share:
Earnings per share is based on the average number of outstanding
shares. Earnings per share is presented with adjustment for
subsequent stock dividends and stock splits. The calculation has not
been adjusted for the 1.6% stock dividend declared on February 16,
1996, because its effect is immaterial. The effect on earnings per
share of the exercise of dilutive options is immaterial.
<PAGE>
(2) Property, Plant and Equipment:
The components of property, plant and equipment at December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Transmission and distribution facilities $2,641,594 $2,159,452 $1,417,320
Production and generating facilities 868,119 818,927 414,743
Pumping, storage and purification facilities 107,653 93,942 80,175
Construction work in progress 212,892 210,213 68,868
Administrative facilities 337,196 285,445 160,423
Intangibles and other 19,900 15,744 12,362
------------- ------------- -------------
$4,187,354 $3,583,723 $2,153,891
=========== ========== ==========
</TABLE>
(3) Mergers and Acquisitions:
In July 1995, the Company acquired Flex Communications by merger. The
Company issued 855,953 shares of Common Stock Series B for all of the
outstanding shares of Flex. This transaction was accounted for using the
pooling of interests method of accounting. Prior year financial
statements were not restated as the amounts are not significant. Flex is
a switch-based, inter-exchange carrier providing long distance, 800
Inbound long-distance, voice mail, paging, private data networks and
cellular services to approximately 5,500 customers in upstate New York.
In March 1995, the Company acquired Douglasville Water Company for
$173,000 and 31,928 shares of Common Stock Series B. Douglasville
provides water utility services in Pennsylvania to approximately 870
customers. This transaction was accounted for using the purchase method
of accounting and the results of operations of Douglasville have been
included in the accompanying financial statements from the date of
acquisition.
In February 1995, the Company acquired from the town of Youngtown,
Arizona, the town's water and wastewater systems for $1,192,000, serving
approximately 3,400 customers. This acquisition was accounted for using
the purchase method of accounting and the results of operations of
Youngtown have been included in the accompanying financial statements
from the date of acquisition.
In November 1994, the Company and ALLTEL Corporation signed definitive
agreements pursuant to which the Company agreed to acquire from ALLTEL
certain telecommunications properties in eight states serving
approximately 110,000 local telephone access lines and certain cable
television systems serving approximately 7,000 subscribers ("ALLTEL
Telecommunications Properties"). The purchase price of the ALLTEL
Telecommunications Properties (net of 3,600 of the Company's telephone
access lines which were valued at $10 million and transferred to ALLTEL
in a tax free exchange) is $282 million. On June 30, 1995, approximately
36,000 local telephone access lines in West Virginia and Oregon were
transferred to the Company. On September 30, 1995, approximately 19,000
local telephone access lines in Tennessee were transferred to the
Company. On October 31, 1995, approximately 18,000 local telephone access
lines in Arizona, New Mexico and Utah and approximately 7,000 cable
television lines in Arizona, New Mexico and California were transferred
to the Company. On December 31, 1995, approximately 20,000 local
telephone access lines in California were transferred to the Company and
the Company's 3,600 local telephone access lines in Pennsylvania were
transferred to ALLTEL. The remaining 23,000 local telephone access lines
are located in Nevada and are expected to be transferred to the Company
in early 1996.
In August 1994, the Company acquired RHC, Inc. ("Metro Utility Co.").
Metro Utility Co. provides water and wastewater treatment services to
approximately 10,000 customers in the suburban Chicago area. The Company
issued 504,807 shares of Common Stock Series B for all of the outstanding
shares of Metro Utility Co. This transaction was accounted for using the
pooling of interests method of accounting. Prior year financial
statements were not restated as the amounts are not significant.
<PAGE>
In May 1993, the Company and GTE Corp. ("GTE") signed definitive
agreements pursuant to which the Company agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telecommunications
properties serving approximately 500,000 local telephone access lines in
eight states ("GTE Telecommunications Properties"). On December 31, 1993,
189,123 local telephone access lines in Idaho, Tennessee, Utah and West
Virginia were transferred to the Company. On June 30, 1994, 270,883
access lines in New York were transferred to the Company. On November 30,
1994, 37,802 access lines in Arizona and Montana were transferred to the
Company and on December 30, 1994, 5,440 local telephone access lines in
California were transferred to the Company.
In 1993, the Company separately acquired Natural Gas Company of
Louisiana ("NGL") and Franklin Electric Light Company, Incorporated
("Franklin") by merger. In these mergers, the Company issued 568,748
shares and 51,500 shares of Common Stock Series B for all of the common
stock of NGL and Franklin, respectively. The acquisitions were accounted
for using the poolings of interests method of accounting.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the GTE and ALLTEL
Telecommunications Properties acquired to date as if the acquisitions had
occurred on January 1 of the year preceding the respective dates
acquired. The effects of the other acquisitions described above would not
significantly impact the pro forma results. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the Company and the GTE and ALLTEL
Telecommunications Properties constituted a single entity during such
periods.
<TABLE>
<CAPTION>
1995 1994 1993
($ in thousands, except for per-share amounts)
<S> <C> <C> <C>
Revenues $1,141,000 $1,138,000 $1,016,000
Net Income $173,000 $172,000 $153,000
Earnings per share $.78 $.78 $.68
</TABLE>
In September 1994, a subsidiary of the Company and a subsidiary of
Century Communications Corp. ("Century") entered into a joint venture
agreement for the purpose of acquiring, for approximately $89 million,
and operating two cable television systems in southern California (the
"Systems"). Century is a cable television company of which Leonard Tow,
the Chairman, Chief Executive Officer and Chief Financial Officer of the
Company, is Chairman, Chief Executive Officer and Chief Financial
Officer. In addition, Claire Tow, a director of the Company, is a Senior
Vice President and a director of Century and Robert Siff, a director of
the Company is a director of Century. The joint venture is governed by a
management board on which the Company and Century are equally
represented. The joint venture has entered into an agreement pursuant to
which a subsidiary of Century (the "Manager") will manage the day-to-day
operations of the Systems. The Manager will not receive a management fee
but will be reimbursed only for the actual costs it incurs on behalf of
the joint venture. With respect to the purchase of any service or asset
for the joint venture for use in the Systems, the Manager is obligated to
pass through to the joint venture any discount, up to 5%, off the
published prices of vendors and is entitled to retain any discount in
excess of 5%. On September 30, 1994, the joint venture acquired the first
system serving approximately 26,500 subscribers. On November 30, 1995,
the joint venture acquired the second system, serving approximately
20,700 subscribers. These joint ventures are being accounted for using
the equity method of accounting.
<PAGE>
(4) Investments:
The components of investments at December 31, 1995, 1994 and 1993 are
as follows:
1995 1994 1993
---- ---- ----
($ in thousands)
State and municipal securities $172,518 $174,790 $296,371
Investment in Centennial 132,583 117,982 90,628
Other fixed income securities 408 411 7,670
Marketable equity securities 23,581 31,828 13,282
Other 0 0 3,071
-------- -------- --------
Total $329,090 $325,011 $411,022
======== ======== ========
The Company's investment in Centennial at December 31, 1995, includes
102,187 shares of Convertible Redeemable Preferred Stock (the "Preferred
Security") and 1,982,294 Class B Common Shares (see Note 1(h)).
Centennial is a publicly traded subsidiary of Century.
Net realized gains on marketable equity securities included in the
determination of net income for the years 1995, 1994 and 1993,
respectively, were $13,904,000, $3,760,000 and $0. The amortized cost of
marketable equity securities sold during 1995, 1994 and 1993 were
$9,863,000, $384,000 and $0. The cost of
securities sold was based on the actual cost of the shares of each
security held at the time of sale. The aggregate fair market value of
marketable equity securities at December 31, 1993 was $27,492,000 and
total unrealized gains were $14,210,000.
Marketable equity securities for each year include 1,807,095 shares
(1,500,000 original shares adjusted for stock dividends) of Class A
Common Stock of Century. These shares represent less than 2% of the total
outstanding common stock of Century. The Chairman, Chief Executive
Officer and Chief Financial Officer of the Company is also Chairman,
Chief Executive Officer and Chief Financial Officer of Century.
Pursuant to the provisions of SFAS 115, the Company classified its
Investments into two categories at January 1, 1994: "held-to-maturity"
and "available-for-sale". The Company recorded unrealized holding gains
on securities classified as available-for-sale as an increase to
Investments and as a separate component of shareholders equity.
The following summarizes the amortized cost, gross unrealized holding
gains and losses and fair market value for investments.
<TABLE>
<CAPTION>
Unrealized Holding Aggregate Fair
Investment Classification Amortized Cost Gains (Losses) Market Value
($ in thousands)
As of December 31, 1995
<S> <C> <C> <C> <C>
Held-To-Maturity $244,982 $ 79,808 $ (59) $ 324,731
Available-For-Sale $ 77,485 $ 8,422 $(1,799) $ 84,108
As of December 31, 1994
Held-To-Maturity $259,484 $ 80,293 $(3,055) $ 336,722
Available-For-Sale $ 50,809 $ 14,718 $ 0 $ 65,527
</TABLE>
The maturities of debt securities and redeemable preferred securities
classified as held to maturity were as follows at December 31, 1995:
<TABLE>
<CAPTION>
Held-to-Maturity Securities
Investment Maturities Amortized Cost Fair Market Value
--------------------- ----------------------------- ------------------------
($ in thousands)
<S> <C> <C>
Due within 1 year $ 46,465 $ 46,724
Due after 1 through 5 years 72,505 73,627
Due after 5 through 10 years 22,565 23,500
Due after 10 years 103,447 180,880
--------- ---------
$244,982 $324,731
======== ========
</TABLE>
<PAGE>
The Company sold $68,458,000, and $19,335,000 of securities
classified as held-to-maturity during 1995 and 1994, respectively, for
the purpose of financing a portion of the acquisition of the GTE and
ALLTEL Telecommunications Properties; gross realized gains on such sales
for 1995 and 1994, respectively, were $474,000 and $372,000, gross
realized losses were $8,000 and $94,000 for 1995 and 1994, respectively.
(5) Fair Value of Financial Instruments:
The following table summarizes the carrying amounts and estimated
fair values for certain of the Company's financial instruments at
December 31, 1995, 1994 and 1993. For the other financial instruments,
representing cash and cash equivalents, accounts and notes receivables,
short-term debt, accounts payable and other accrued liabilities, the
carrying amounts approximate fair value due to the relatively short
maturities of those instruments.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Temporary Investments $ 0 $ 0 $108,818 $108,935 $89,752 $93,438
Investments 329,090 408,839 325,011 402,249 411,022 534,496
Long-Term Debt 1,187,000 1,263,000 994,189 992,349 547,673 602,710
</TABLE>
The fair value of the above financial instruments, except for the
investment in the Centennial Preferred Securities, are based on quoted
prices at the reporting date for those financial instruments. The fair
value of the Centennial Preferred Security is estimated to be its
accreted value at the respective reporting dates (see Note 1(h)).
(6) Long-term Debt:
<TABLE>
<CAPTION>
Weighted average
interest rate at December 31,
--------------------------------
December 31, 1995 Maturities 1995 1994 1993
----------------- ---------- ---- ---- ----
($ in thousands)
<S> <C> <C> <C> <C> <C>
Debentures 7.50% 2001-2034 $ 700,000 $425,000 $150,000
Industrial development
revenue bonds 5.87% 2015-2030 374,089 325,125 284,777
Rural Utility Services
and Rural Telephone
Bank notes 5.60% 1996-2027 71,609 47,106 42,237
Senior unsecured notes 8.05% 2012 23,000 0 0
Commercial paper notes
payable 5.73% Variable 16,100 187,800 58,953
Other long-term debt 8.66% 1996-1998 2,202 9,158 11,706
------- ------------ ----------- ---------
6.86% $1,187,000 $994,189 $547,673
===== ========== ======== ========
</TABLE>
The total principal amounts of industrial development revenue bonds at
December 31, 1995, 1994 and 1993, were $406,080,000, $392,530,000 and
$377,890,000, respectively. Industrial development revenue bond funds
issued are held by a trustee until used for payment of qualifying
construction. The amounts presented in the table above represent funds
that have been used for construction through December 31, 1995, 1994 and
1993, respectively.
<PAGE>
Certain commercial paper notes payable have been classified as
long-term debt because these obligations are expected to be refinanced
with long-term debt securities.
The Company has available lines of credit with commercial banks in the
amounts of $400,000,000 and $200,000,000, which expire on December 14,
1996 and December 16, 2000, respectively, and have associated facility
fees of one-twentieth of one percent (.05%) per annum and one-thirteenth
of one percent (.075%) per annum, respectively. The terms of the lines of
credit provide the Company with extension options.
The installment principal payments and maturities of long-term debt for
the next five years are as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
($ in thousands)
<S> <C> <C> <C> <C> <C>
Installment principal payments $ 2,965 $2,935 $2,604 $2,710 $2,839
Maturities 900 125 1,428 - -
--------- -------- ------- ---------- -----------
$ 3,865 $ 3,060 $4,032 $2,710 $2,839
======== ======= ====== ====== ======
</TABLE>
Holders of certain industrial development revenue bonds may tender at par
prior to maturity. The next tender date is August 1, 1997 for $30,350,000
of principal amount of bonds. In the years 1995, 1994 and 1993,
respectively, interest payments on short- and long-term debt were
$78,659,000, $74,803,000 and $40,217,000.
(7) Capital Stock:
The common stock of the Company is in two series, Series A and Series
B. The Company is authorized to issue up to 200,000,000 shares of Common
Stock Series A and 300,000,000 shares of Common Stock Series B. Quarterly
stock dividends are declared and issued at the same rate on both Series A
and Series B. Series B shareholders have the option of enrolling in the
"Series B Common Stock Dividend Sale Plan." The Plan offers Series B
shareholders the opportunity to have their stock dividends sold by the
Plan Broker and the net cash proceeds of the sale distributed to them
quarterly. Series A shares are convertible share-for-share into Series B
shares. Series B shares are not convertible into Series A. Both series
are the same in all other respects.
On May 21, 1993, the Company declared a 2-for-1 stock split of its
Series A and Series B common stock. The stock split was distributed on
August 31, 1993, to shareholders of record on August 16, 1993.
On January 30, 1995, the Company, pursuant to an underwritten public
offering, issued 19,000,000 shares of its Common Stock Series A at an
issuance price of $13 3/8 per share (not adjusted for subsequent stock
dividends). The $244,200,000 of net proceeds from the issuance was used
to permanently fund a portion of the acquisition of the GTE
Telecommunications Properties.
Quarterly stock dividend rates declared on Common Stock Series A and
Series B are based upon cash equivalent rates and share market prices,
and have been as follows:
<TABLE>
<CAPTION>
Dividend Rates
1995 1994 1993
<S> <C> <C> <C>
First quarter 1.5% 1.1% 1.2%
Second quarter 1.5% 1.15% 1.0%
Third quarter 1.6% 1.3% 1.1%
Fourth quarter 1.6% 1.4% 1.0%
----- ---- ----
Total 6.2% 4.95% 4.3%
==== ===== ====
Compounded Total 6.35% 5.04% 4.37%
===== ===== =====
</TABLE>
Annualized stock dividend cash equivalent rates considered by the
Company's Board of Directors in declaring stock dividends for 1995, 1994
and 1993, respectively, were 72 1/4 cents, 68 7/8 cents and 65 cents
per share (adjusted for all stock splits and stock dividends paid
subsequent to all dividends declared through December 31, 1995 and
rounded to the nearest 1/8th).
<PAGE>
In May 1995, the Board of Director's authorized the buyback of up to
$50 million of Common Stock Series A and Series B shares. Shares have
been and will be purchased on the open market from time to time. The
Company purchased 1,865,000 shares at a cost of $22,028,000 in 1995.
Purchased shares are used to pay stock dividends. The Company used 7,000
shares (not adjusted for subsequent stock dividends and a stock split)
acquired from employees pursuant to the Management Equity Incentive
Plan in partial payment of the 1993 stock dividend. These shares had a
cost of $215,000.
The activity in shares of outstanding common stock for Series A and
Series B during 1995, 1994 and 1993 is summarized as follows:
Number of Shares
Series A Series B
Balance at January 1, 1993 64,156,000 22,604,000
Acquisitions 0 621,000
Stock dividends 4,114,000 1,548,000
Stock split (2 for 1) 64,620,000 24,142,000
Stock plans 0 457,000
Conversion of Series A to Series B (3,105,000) 3,105,000
------------ ------------
Balance at December 31, 1993 129,785,000 52,477,000
Acquisitions 0 505,000
Stock dividends 6,484,000 2,744,000
Stock plans 355,000 1,122,000
Conversions of Series A to Series B (2,278,000) 2,278,000
----------- -----------
Balance at December 31, 1994 134,346,000 59,126,000
Acquisitions 0 888,000
Stock issuance 19,000,000 0
Stock dividends 9,499,000 4,098,000
Common stock buybacks (462,000) (1,403,000)
Stock plans 601,000 1,894,000
Conversions of Series A to Series B (7,626,000) 7,626,000
------------ -----------
Balance at December 31, 1995 155,358,000 72,229,000
============ ===========
The Company used 7,000 Series B shares (not adjusted for subsequent
stock dividends and a stock split) acquired from employees pursuant to
the Management Equity Incentive Plan in partial payment of the 1993 stock
dividend. These shares had a cost of $215,000.
On January 22, 1996, pursuant to an underwritten public offering, a
subsidiary of the Company issued 4,025,000 shares of 5% Equity Providing
Preferred Income Convertible Securities ("EPPICS") having a liquidation
preference of $50 per security and a maturity date of January 15, 2036.
Each security is initially convertible into 3.252 shares of the Company's
Common Stock Series A at a conversion price of $15.375 per share. The
$196,722,000 in net proceeds from the sale of these securities were used
to repay short-term debt, permanently fund a portion of the ALLTEL
Telecommunications Properties to be acquired, and for other general
corporate purposes.
The Company has 50,000,000 of authorized but unissued shares of
preferred stock ($.01 par).
(8) Employee Stock Plans:
Under the Citizens Utilities Company Management Equity Incentive Plan
("MEIP"), awards of the Company's Series A or Series B common stock may
be granted to eligible officers, management employees and non-management
exempt employees of the Company and its subsidiaries in the form of
incentive stock options, non-qualified stock options, stock appreciation
rights ("SARs"), restricted stock or other stock-based awards. The MEIP
is administered by the Compensation Committee of the Board of Directors.
The maximum number of shares of common stock which may be issued
pursuant to awards at any time is 5% of the Company's common stock
outstanding provided that no more than 9,100,000 shares (adjusted for
subsequent stock dividends and stock splits) will be issued pursuant to
incentive stock options under the MEIP. No awards will be granted more
than 10 years after the effective date (June 22, 1990) of the MEIP. The
exercise price of stock options and SARs shall be equal to or greater
than the fair market value of the underlying common stock on the date of
grant. Stock options are generally not exercisable on the date of grant
but vest over a period of time.
<PAGE>
Under the terms of the MEIP, subsequent stock dividends and stock
splits have the effect of increasing the option shares outstanding, which
correspondingly decrease the average exercise price of outstanding
options.
The following summary of shares subject to option under the MEIP
presents option share activity adjusted for subsequent stock splits and
dividends through the end of the respective year presented.
<TABLE>
<CAPTION>
Weighted
Average option
Shares subject to option price per share
<S> <C> <C>
Balance at January 1, 1993 3,920,000 $12.54
Options granted 1,862,000 18.06
Options exercised (239,000) 7.62
Options canceled or lapsed (25,000) 5.44
Adjustment for stock dividends* 201,000 -
------------
Balance at December 31, 1993 5,719,000 14.14
Options granted 1,562,000 13.06
Options exercised (149,000) 8.04
Options canceled or lapsed (69,000) 14.17
Adjustment for stock dividends* 287,000 -
-------------
Balance at December 31, 1994 7,350,000 14.07
Options granted 99,000 11.06
Options exercised (260,000) 6.75
Options canceled or lapsed (107,000) 14.16
Adjustment for stock dividends* 456,000 -
-------------
Balance at December 31, 1995 7,538,000 $14.30
=============
Options exercisable at end of year 4,472,000 $12.59
=============
</TABLE>
* Represents adjustment to outstanding option shares to reflect stock
dividends.
During 1995 and 1993, the Company granted restricted stock awards to
key employees in the form of the Company's Common Stock Series B. There
were no restricted stock award grants in 1994. The number of Series B
shares issued as restricted stock awards during 1995 and 1993 were 9,000
and 158,000, respectively, (adjusted for subsequent stock dividends and
stock splits). None of the restricted stock awards may be sold, assigned,
pledged or otherwise transferred, voluntarily or involuntarily, by the
employee until the restrictions lapse. The restrictions lapse over six
months, three year and five year periods. At December 31, 1995, 347,000
shares (adjusted for subsequent stock dividends and stock splits) of
restricted stock were outstanding.
The Company's Employee Stock Purchase Plan ("ESP Plan") was approved by
shareholders on June 12,1992 and amended on May 21, 1993. Under the ESP
Plan, eligible employees of the Company and its subsidiaries may
subscribe to purchase shares of Common Stock Series B at 85% of the lower
of the average market price on the first day of the purchase period or on
the last day of the purchase period. An employee may elect to have up to
20% of annual base pay withheld in equal installments throughout the
designated payroll-deduction period for the purchase of shares. The value
of an employee's subscription may not exceed $25,000 in any one calendar
year. As of December 31, 1995, there were 1,813,000 shares of Common
Stock Series B reserved for issuance under the ESP Plan. These shares
will be adjusted for any future stock dividends or stock splits. The ESP
Plan will terminate when all 1,813,000 shares reserved have been
subscribed for, unless terminated earlier by the Board of Directors. The
ESP Plan is administered by the Compensation Committee of the Board of
Directors. As of December 31, 1995, the number of employees participating
in the ESP Plan was 1,768 and the total number of shares subscribed for
under the ESP Plan was 400,923.
<PAGE>
The Company's non-employee Directors' Deferred Fee Equity Plan (the
"Directors Plan") was approved by shareholders on May 19, 1995. The
Directors Plan includes an Option Plan and a Stock Plan. Through the
Option Plan, an eligible director may elect to receive his or her
director's fees for a period of up to five years in the form of options
to purchase Company common stock, the number of such options being equal
to such fees divided by 20% of the fair market value of Company common
stock on the effective date of the options. Through the Stock Plan,
an eligible director may elect to receive his or her director's fees in
the form of Plan Units, the number of such Plan Units being equal to such
fees divided by the fair market value of Company common stock on certain
specified dates. In the event of termination of Directorship, a Stock
Plan participant will receive the value of such Plan Units in either
stock or cash or installments of cash as selected by the Participant at
the time of the related Stock Plan election. As of any date the maximum
number of shares of Common Stock which the Plan may be obligated to
deliver pursuant to the Stock Plan and the maximum number of shares of
Common Stock which shall have been purchased by Participants pursuant
to the Option Plan and which may be issued pursuant to outstanding
options under the Option Plan shall not be more than one (1%) percent
of the total outstanding shares of Common Stock Series A and Series B
of the Company as of such date, subject to adjustment in the event of
changes in the corporate structure of the Company affecting capital
stock. There are currently 9 directors participating in the Directors
Plan. In 1995, the total Options and Plan Units earned were 96,246,
and 3,416, respectively. At December 31, 1995, 40,595 options were
exercisable at a weighted average exercise price of $12.127.
(9) Income Taxes
The following is a reconciliation of the provision for income taxes at
federal statutory rates to the effective rates:
1995 1994 1993
----------- ----------- -----------
Consolidated tax provision at
federal statutory rate 35.0% 35.0% 35.0%
State income tax provisions,
net of federal income tax
benefit 2.1% 2.5% 3.6%
Allowance for funds used
during construction (2.3%) (2.4%) (2.5%)
Amortization of
investment tax credits (0.9%) (0.9%) (1.2%)
Nontaxable investment income (1.7%) (2.9%) (4.7%)
Accrual adjustment (2.9%) (0.2%) (0.3%)
All other - net 0.2% (0.2%) (0.5%)
----- ------ -----
29.5% 30.9% 29.4%
===== ====== =====
For 1995, 1994 and 1993, accumulated deferred income taxes amounted to
$298,424,000, $230,556,000 and $194,165,000, respectively, and the
unamortized deferred investment tax credits amounted to $15,670,000,
$17,594,000 and $19,306,000, respectively. Income taxes paid during the
year were $39,425,000, $30,395,000 and $24,139,000 for 1995, 1994 and 1993,
respectively.
<PAGE>
The components of the net deferred income tax liability at December 31, are
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
($ in thousands)
Deferred income tax liabilities
Property, plant and equipment basis
<S> <C> <C> <C>
differences $246,128 $177,549 $148,756
Regulatory assets 63,871 62,578 57,134
Other-net 22,741 28,704 25,365
---------- ----------- ------------
332,740 268,831 231,255
--------- ---------- -----------
Deferred income tax assets
Deferred investment tax credits 6,231 7,183 6,649
Regulatory liabilities 12,415 13,498 11,135
---------- ----------- -----------
18,646 20,681 17,784
---------- ----------- -----------
Net deferred income tax liability $314,094 $ 248,150 $ 213,471
======== ========= =========
</TABLE>
The provision for federal and state income taxes, as well as the taxes
charged or credited to Shareholders' equity, includes amounts both
payable currently and deferred for payment in future periods as indicated
below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Income taxes charged (credited) to the income statement: ($ in thousands)
--------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $13,297 $28,347 $39,571
State 1,014 3,595 8,682
--------- ---------- ---------
Total current 14,311 31,942 48,253
-------- ---------- ---------
Deferred:
Federal 48,168 29,829 4,917
Investment tax credits (2,057) (1,949) (2,086)
State 6,395 4,501 1,214
-------- ---------- ---------
Total deferred 52,506 32,381 4,045
-------- ---------- ---------
Income taxes charged (credited) to the income statement $66,817 $64,323 $52,298
======== ========== =========
Income taxes charged (credited) to shareholders' equity:
Deferred income taxes on unrealized gains
on securities classified as available-for-sale ($3,052) $5,588 $ 0
Current benefit arising from stock
options exercised (406) (137) (537)
-------- --------- ----------
Income taxes charged (credited) to shareholders' equity ($3,458) $5,451 $ (537)
======== ========= ==========
Total income taxes $63,359 $69,774 $51,761
======== ========= ==========
</TABLE>
<PAGE>
(10) Segment Information:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
($ in thousands)
Telecommunications:
<S> <C> <C> <C>
Revenues $616,747 $456,875 $177,497
Assets 2,097,277 1,805,893 910,276
Depreciation 120,608 81,659 22,744
Capital expenditures 144,613 177,419 66,619
Operating income before
income taxes 174,196 148,720 85,934
Natural gas:
Revenues $197,902 $208,940 $211,892
Assets 344,036 306,979 289,121
Depreciation 12,155 10,827 10,646
Capital expenditures 31,056 31,235 25,677
Operating income before
income taxes 25,874 30,205 28,971
Electric:
Revenues $175,351 $167,940 $158,222
Assets 487,893 458,457 446,284
Depreciation 17,035 15,251 12,924
Capital expenditures 39,829 43,132 43,673
Operating income before
income taxes 30,060 31,221 30,660
Water/Wastewater:
Revenues $ 79,032 $ 72,395 $ 65,488
Assets 505,851 455,312 400,288
Depreciation 9,137 7,438 8,384
Capital expenditures 41,261 38,884 37,426
Operating income before
income taxes 24,043 17,978 15,595
</TABLE>
<PAGE>
(11) Quarterly Financial Data (unaudited):
<TABLE>
<CAPTION>
Net Income
($ in thousands) Per Share
---------------- -------------------
1995 Revenues Amount Series A Series B
---- -------- ------ -------- --------
<S> <C> <C> <C> <C>
First quarter $267,034 $33,903 $.16 $.16
Second quarter 251,678 41,939 .19 .19
Third quarter 259,732 45,061 .20 .20
Fourth quarter 290,588 38,633 .18 .18
Net Income
($ in thousands) Per Share
---------------- --------------------
1994 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $222,156 $31,655 $.16 $.16
Second quarter 187,130 38,016 .19 .19
Third quarter 241,005 38,687 .19 .19
Fourth quarter 255,859 35,639 .17 .17
</TABLE>
The quarterly net income per share amounts are rounded to the nearest
cent. Annual earnings per share may vary depending on the effect of such
rounding.
(12) Supplemental Cash Flow Information:
The following is a schedule of net cash provided by operating
activities for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Net income $159,536 $143,997 $125,630
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense 158,935 115,175 54,698
Deferred income taxes and
amortization of investment
tax credits 52,506 32,381 4,045
Centennial investment income (14,353) (13,481) (9,594)
Allowance for equity funds used
during construction (10,783) (11,402) (10,123)
Change in accounts receivable (22,684) (20,663) (23,068)
Change in accounts payable 11,247 21,520 (3,773)
Change in accrued taxes and
accrued interest (6,923) 13,024 24,960
Other 10,893 (18,235) 32,174
----------- --------- ---------
Net cash provided by operating activities $338,374 $262,316 $ 194,949
=========== ========= =========
</TABLE>
In conjunction with the acquisitions of the ALLTEL
Telecommunications Properties, the Company assumed $41,447,000 in debt
at a weighted average interest rate of 6.59%.
<PAGE>
(13) Retirement Plans:
Pension Plan
The Company and its subsidiaries have a noncontributory pension plan
covering all employees who have met certain service and age requirements.
The benefits are based on years of service and final average pay or
career average pay. Contributions are made in amounts sufficient to fund
the plan's net periodic pension cost while considering its tax
deductibility and the minimum funding requirement. Plan assets are
invested in a diversified portfolio of equity and fixed-income
securities.
Pension costs for 1995, 1994 and 1993 include the following components:
1995 1994 1993
---- ---- ----
($ in thousands)
Service cost $6,549 $ 5,777 $ 3,585
Interest cost on projected
benefit obligations 10,735 8,166 5,038
Net amortization and deferral 335 172 1,751
Return on plan assets (11,784) (9,754) (6,945)
-------- ------- --------
Net pension cost $5,835 $4,361 $ 3,429
======== ======= ========
Assumptions used in the computation of pension costs/actuarial present
value of projected benefit obligations included the following:
1995 1994 1993
---- ---- ----
Discount rate 8.25% /7.50% 8.00% 7.50%
Expected long-term rate of
return on plan assets 8.75% 8.50% 8.00%
Rate of increase in
compensation levels 4.50%/4.00% 4.50% 4.50%
As of December 31, 1995, 1994 and 1993, respectively, the fair values
of plan assets were $133,700,000, $133,964,000 and $73,233,000. The
actuarial present values of the accumulated benefit obligations were
$100,367,000, $86,186,000 and $57,216,000 for 1995, 1994 and 1993,
respectively. The actuarial present values of the vested accumulated
benefit obligation for 1995, 1994 and 1993, respectively, were
$86,260,000, $77,053,000 and $54,591,000. The total projected benefit
obligations for 1995, 1994 and 1993, respectively, were $145,008,000,
$125,943,000 and $75,531,000. In 1994, the Company recorded $34,199,000
of accumulated benefit obligation, $28,069,000 of vested accumulated
benefit obligation and $54,166,000 of projected benefit obligation
pursuant to the acquisition of the GTE Telecommunications Properties.
Assets sufficient to fully fund these obligations were transferred to
the plan from the GTE pension plan.
Other Post-Retirement Benefit Plans
The Company provides certain medical, dental and life insurance
benefits for retired employees and their beneficiaries and covered
dependents. The components of the net periodic postretirement benefit
cost for the years ended December 31, 1995 , 1994 and 1993 are as
follows:
1995 1994 1993
---- ---- ----
($ in thousands)
Service cost $2,038 $1,826 $ 845
Interest cost 4,023 3,418 1,710
Amortization of transition obligation 1,038 1,048 1,116
Other 467 313 0
------- ------ ------
Net periodic postretirement
benefit cost $7,566 $6,605 $3,671
======= ====== ======
<PAGE>
The following table sets forth the accrued postretirement benefit
liability recognized in the Company's balance sheets at December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
($ in thousands)
Accumulated postretirement benefit obligation:
<S> <C> <C> <C>
Retirees ($19,736) ($14,946) ($13,919)
Fully eligible active plan participants (9,964) (7,158) (2,749)
Other active plan participants (30,304) (32,882) (7,328)
------------ ---------- ----------
Total accumulated postretirement
benefit obligation (60,004) (54,986) (23,996)
Plan assets at fair value 912
Unrecognized net (gain) loss (2,961) (1,914) 1,563
Unrecognized prior service cost 3,480 2,932 (1,477)
Unrecognized transition obligation 17,638 18,676 21,201
---------- ---------- ---------
Net accumulated postretirement benefit
obligation ($40,935) ($35,292) ($2,709)
========== ========== =========
</TABLE>
Of the net periodic post retirement benefit cost presented above, the
Company recorded $2,781,000, $4,621,000 and $1,601,000 in 1995, 1994 and
1993, respectively, as regulatory assets for states whose regulatory
commissions to date have not but will likely allow recovery of accrued
costs in future rate proceedings. The Company's annual cost includes
20-year prospective recognition of the transition obligation. In those
states in which regulatory commissions have permitted recovery of accrued
costs, the Company has established trusts to fund these future
liabilities. For measurement purposes, the Company used the same discount
rates as were used for the pension plan and a 7% annual rate of increase
in the per-capita cost of covered health-care benefits, gradually
decreasing to 5% in the year 2040 and remaining at that level thereafter.
The effect of a 1% increase in the assumed health-care cost trend rates
for each future year on the aggregate of the service and interest cost
components of the total postretirement benefit cost would be $606,000 and
the effect on the accumulated postretirement benefit obligation for
health benefits would be $6,000,000. In 1994, the Company recorded
$27,357,000 of accumulated postretirement benefit obligation pursuant to
the acquisition of the GTE Telecommunications Properties.
(14) Commitments and Contingencies:
The Company has budgeted expenditures for facilities in 1996 of
approximately $340,000,000 and certain commitments have been entered into
in connection therewith.
The Company conducts certain of its operations in leased premises and
also leases certain equipment and other assets pursuant to operating
leases. Terms of the leases, including purchase option and
obligations, renewals and maintenance costs, vary by lease.
Future minimum rental commitments for all long-term noncancellable
operating leases are as follows:
Year Amount
---- ------
1996 $9,762,000
1997 8,830,000
1998 8,196,000
1999 7,819,000
2000 7,890,000
2001 to 2020 30,215,000
-----------
Total $72,712,000
===========
Total rental expense included in the Company's results of operations
for the years ended December 31, 1995, 1994 and 1993 was $6,778,000,
$3,913,000 and $2,098,000, respectively.
A subsidiary of the Company was the guarantor of a $33,200,000
bank loan to Hungarian Telephone and Cable Corp. ("HTCC"). In
addition, the Company has agreed to provide up to
$20,000,000 of additional financial support to HTCC. No amount has
been accrued for the guarantee and financial support commitments.
INCENTIVE DEFERRED COMPENSATION PLAN
DATED AUGUST 5, 1977; AS AMENDED APRIL 7, 1978;
JUNE 4,1979; JUNE 6,1980; JANUARY 16,1981;
JUNE 15,1984; APRIL 16,1991; APRIL 14,1992;
DECEMBER 15, 1994; FEBRUARY 8, 1995; AND
SEPTEMBER 28, 1995
The provisions of the Incentive Deferred Compensation Plan (the "Plan") of
Citizens Utilities Company (the "Company") are as follows:
1. Definitions
(a) "Participant" means a person who is participating in the
Incentive Deferred Compensation Plan as provided hereinafter.
(b) "Plan Year" is a calendar year.
(c) Each employee of the Company shall become an "Active
Participant" as of December 31 of the first Plan Year for
which an Award is made to the employee's account.
(d) An Active Participant shall become an "Inactive Participant"
on the day the Participant's employment with the Company
terminates and shall continue in that status so long as a
balance remains in such account.
(e) "Credit balance" means that portion of each Participant's
account which has not been distributed or invested or deemed
invested as provided in Section 12.
(f) A "Phantom stock credit" means a deemed investment in Citizens
Utilities Company common stock as provided for in Section
12(a) 2.
(g) "Market Price" shall mean the mean between the high and low
prices for the Company's shares of Common Stock on the New
York Stock Exchange as reported by such exchange, or if the
Company's Common Stock is not traded on the New York Exchange
but is traded on the American Stock Exchange, as reported by
such exchange, or if the Company's Common Stock is not traded
on such exchanges, the high and low prices for the Company's
shares of Common Stock in the over-the-counter market, as
reported by the National Association of Securities Dealers
Automated Quotation System (NASDAQ) (or other quotation
service).
(h) "Officer" means an officer of the Company as defined in Rule
16a-1 (f) of the Securities and Exchange Commission ("SEC").
1
<PAGE>
2. Purpose and General Statement of Plan
(a) The purpose of the Plan is to provide select employees of the
Company with both incentive and reward for superior
performance.
(b) The Company by decision of its Board of Directors may make a
contribution to the Plan for any Plan Year. The amounts
contributed to the Plan and credited to each Participant's
account shall be reflected on the Company's books, but the
Company shall not be obligated to establish any trust fund or
otherwise segregate these amounts.
(c) The Committee of the Plan will determine which employees will
be entitled to an Award for that year and the amount that will
be awarded to their respective accounts.
(d) The balances in a Participant's account shall vest pursuant
to a graduated vesting schedule.
(e) The credit balance in each Participant's account at the end of
each Plan Year will receive, except as provided by Section 13,
an amount as provided in Section 7 hereof.
(f) When a Participant terminates by reason of retirement, death
or permanent and total disability, the Participant or
Participant's beneficiaries will be entitled to receive
payment of (i) the balance then in such account, (ii)
subsequently, 100% of any Award made to the employee for the
Plan Year in which termination occurs and (iii) any additional
credit according to Sections 2(e) and 7.
The foregoing (b) through (f) states portions of the Plan in general terms. All
benefits, obligations, and any other matters arising under the Plan shall be
governed in accordance with detailed provisions of the Plan, and not the
foregoing (b) through (f).
3. Committee of the Plan
The Plan shall be administered by a Committee initially consisting of
three members. The members of the Committee shall be chosen from time
to time by the Board of Directors of the Company. Each member shall be
a disinterested person within the meaning of Rule 16b-3 of the SEC
promulgated under Section 16 of the Securities Exchange Act of 1934.
The number of members of the Committee may be changed from time to time
by the Board of Directors.
2
<PAGE>
4. Contributions to the Plan
Commencing with the fiscal year of the Company ending December 31,
1976, and for each fiscal year of the Company thereafter, the Board of
Directors of the Company shall determine the maximum amount, if any,
that the Company will contribute to the Plan and any like plans for
that fiscal year. The Committee shall be informed of the amount to be
so contributed not later than 120 days after the end of such year. The
total amount of the Awards granted with respect to a Plan Year which
shall be subject to the elections permitted in Section 12(a) (2) (3)
and (4) shall be limited to the greater of 3% of the net income before
taxes of such Plan Year or of the average net income before taxes for
the three calendar years ending with and including the Plan Year. The
price per share of Common Stock at which phantom stock credits may be
deemed invested shall be the market price of such shares at the time of
the deemed purchase.
5. Eligibility
All select employees of the Company shall be eligible to participate in
the Plan. The Committee shall designate, in accordance with Section 6,
those who will be entitled to Awards from the Company's contribution
for each fiscal year and the amount of each such Award. An Award for
one fiscal year shall not entitle the Participant to receive an Award
for any subsequent fiscal year.
6. Determination of Amount Awarded to Account
After being informed by the Company of the amount available for
contribution for the preceding fiscal year, the Committee shall select
the employees who will be entitled to Awards and determine the amounts
to be awarded to their respective accounts as of the end of that fiscal
year. The Committee shall be under no obligation to make Awards equal
to all or any part of the Company's allocation and any balance of said
allocation remaining after said Awards have been made shall revert to
the Company. Notice of Awards for a Plan Year will be given to
Participants not later than five months after the end of that Plan
Year. If an employee is participating in the Plan for the first time,
the Committee shall give to the employee a copy of the Plan. The
Committee shall give to each other Participant a copy of any amendments
or the amended Plan adopted since the last notice of Award given to the
Participant.
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7. Additional Credit on Account Balance
Subject to Section 8, the credit balance of each Participant under the
Plan which is not being distributed under Section 12 shall be credited
as of the last day of each calendar year, with an amount equal to the
product of (a) the average of the month end credit balance in the
account for each month of that calendar year multiplied by (b) a
percentage rate to be recommended annually by the Committee to the
Board of Directors of the Company and to be established by the Board of
Directors, with affected members not voting. All amounts invested in
elective investments at the request of a Participant as permitted by
Section 12, shall be excluded from such Participant's Plan account when
calculating the month end credit balance in the account for purposes
of Section 7.
8. Investment of Plan Funds
Instead of the credits to the accounts under Section 7, the Committee
may determine, at some future date, to allocate or charge to the
accounts under the Plan any appreciation or depreciation attributable
to investment of the credit balances in the accounts. If that
determination is made, each Participant in the Plan will be given
information concerning the proposed investment arrangements and an
opportunity annually to elect not to participate in the arrangements,
but to have or continue to have the Participant's account credited
under Section 7.
9. Vesting
(a) Subsequent to Fiscal Year 1989, all Awards for Participants
earning less than the amount set forth in Section 414 (q) (1)
(B) of the Internal Revenue Code of 1986, as amended (which
amount is $99,000 for 1994, subject to cost of living
adjustments for periods after 1994) shall vest on the date the
Award is approved. Awards for Participants earning in excess
of the amount set forth in Section 414 (q) (1) (B) of the
Internal Revenue Code of 1986, as amended, shall vest pro-rata
over a three year period beginning on the date the Award is
approved by the Committee and on January 1 of the next two
succeeding calendar years. No vesting credit shall be given
for the year in which a Participant's employment terminates
except by reason of retirement, death or permanent disability.
With respect to a Participant who terminates by reason of
retirement, death or permanent and total disability, all
Awards made to the Participant's account for Plan Years prior
to the year of termination and 100% of an Award that may be
made for the Plan Year in which termination occurs shall be
fully vested on the date of such termination.
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<PAGE>
10. Forfeiture
The vested amount of the credit balance in the account of a Participant
shall be forfeited if the Committee determines that a Participant's
employment was terminated because of willful misconduct or gross
negligence. The Committee's determination with respect to a forfeiture
shall be set forth in a notice given to the Participant and to the
Company and shall be final and binding on both; any forfeiture shall
take place immediately upon receipt of the notice by the Company.
11. Reversion of Non-vested and Forfeited Amounts
As of the last day of each fiscal year and after giving effect to
crediting the accounts under the Plan with the amounts determined
pursuant to Sections 6 and 7, the non-vested amounts of the credit
balances of accounts of Participants whose employment by the Company
terminated during that year and the credit balances of all accounts
forfeited during that year shall revert to the Company.
12. Elections for Withdrawal or Investment
(a) An active Participant in the Plan shall have the right each
year to make any one of the following elections which shall be
made before September 1 of a Plan Year with respect to any
Award made for such Plan Year:
1. To withdraw in cash up to 100% of the vested
percentage of any Award which may be made to the
Participant in the subsequent calendar year for
the current Plan Year, by a request in writing to
the Committee at any time before September 1 of the
current Plan Year specifying the percentage of
the Award to be withdrawn. Thereafter, in accordance
with this Section 12 (a) 1., the amount so requested
to be withdrawn shall be paid to the Participant,
without interest thereon, within 10 business days
after notification by the Committee to the
Participant of the amount of the Award.
2. To request before September 1 of the current calendar
year any other elections the Committee may offer from
time to time but the total dollar amount thereof
shall not exceed 100% of the vested percentage of any
Award which may be made to the Participant in the
subsequent calendar year for the current calendar
year.
3. To request before September 1 of the current calendar
year, the investment of all or a portion of the
Participant's vested aggregate balances in such
elective investments and in such percentage amounts
as the Committee may offer from time to time.
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<PAGE>
4. No such request of a participant who is an officer
relating to a phantom stock credit in Citizens
Utilities Company common stock shall be carried out
within six months of any withdrawal or reduction of
such participant's phantom stock credit account.
5. Paragraph 2 above of this Section 12(a), which
permits a Participant to request that the vested
portion of any Award be paid at the time of
termination of employment with the Company,
constitutes a separate employee benefit program from
the remainder of the Plan. In accordance with
Sections 201(2), 301 (a) (3) and 401 (a) (1) of the
Employee Retirement Income Security act of 1974, as
amended ("ERISA") (relating to so-called "top hat
plans"), such Participants who are either officers of
the Company or whose annual rate of taxable
compensation is expected to be above an amount
sufficient for this separate portion of the Plan
qualify as a top hat under such ERISA sections.
Subject to any Department of Labor regulations or
similar authoritative guidance which may arise in the
future, such amount shall be the amount set forth in
Section 414 (q) (1) (B) of the Internal Revenue Code
of 1986, as amended (which amount is $99,000 for
1994, subject to cost of living adjustments for
periods after 1994).
(b) Shares of Citizens Utilities Company common stock that may be
for valuation purposes deemed acquired in connection with the
foregoing election by a Participant shall be deemed purchased
in such series of stock and at market times and places as
directed by the Committee but not within six months of any
such election by an officer.
(c) The monetary difference between the amount of any Award made
to a Participant and the amount thereof that said Participant
had elected to withdraw in cash and/or to have invested
pursuant to this Section 12 shall be credited to the
Participant's Plan Account.
(d) Participant may elect in writing, by a letter to the
Committee, to have the value of any rounded number of
valuation shares that are credited for valuation purposes to
the Participant's Plan Account deemed to be sold, and the net
cash value of such deemed sale shall be credited to the
Participant's Plan Account; however, no valuation shares will
be deemed sold within one year of the date of deemed
purchase thereof or within six months of the date of such
election, and with respect to Awards subsequent to April 30,
1991, any such election (by an officer) must be made (and by
a Participant who is not an officer may be made) prior to
the date of Award and must specify a fixed date or dates for
such deemed sale according to such rules as the Committee may
specify. (If a Participant (i) shall have made a request
(and at the time of such request shall not have been an
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<PAGE>
officer) to have any portion of an Award which may be made to
him be deemed for valuation purposes to be invested in
valuation shares and (ii) shall not have also have specified a
fixed date or dates for the deemed sale of such valuation
shares as contemplated in the previous sentence, and such
Participant shall be appointed to be an officer of the Company
for purposes of Section 16 of the Securities Exchange Act of
1934, the valuation shares shall be deemed sold and the value
thereof transferred to such Participant's Plan Account (not
representing elective investments) on July 3 of the year
following Participant's appointment as officer.)
(e) If a Participant requests the Committee to invest any portion
of an Award in Citizens Utilities Company common stock, no
deemed purchase or other determination of the price or number
of such shares to be credited to a Participant's Plan Account
shall be carried out within six months of the making of
such request. Except for transactions and elections incident
to the death, retirement, permanent and total disability or
termination of employment of a Participant, no deemed sale of
shares of Citizens Utilities Company common stock, or other
determination of the price or number of such shares based on
market price shall be carried out earlier than six months
after a request, election or other notice from or by a
participant.
(f) Elections pursuant to Section 12(a) shall be made annually.
Any election made by a Participant pursuant to this Section 12
shall be irrevocable.
(g) The procedures for implementing the exercise of the foregoing
elections shall be established by the Committee, and may be
amended in the Committee's discretion from time to provided
that no amendment or modification shall be effected which is,
taken overall, detrimental to a Participant's entitlement
without the concurrence of the Participant.
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<PAGE>
13. Payment of Account
Subject to Section 10, when a Participant terminates, the terminating
Participant shall be paid the entire amount of the vested credit
balance in a one lump sum within thirty days of the termination date,
except any credit balance resulting from the deemed sale of valuation
shares shall not be paid to any officer until after six months and one
day after termination. No unvested credit balances shall be paid in
addition to vested credit balances for the year in which termination
occurs for reasons other than retirement, death, or permanent and total
disability. Participants may not receive Citizens Utilities Company
common stock or any beneficial interest therein or right thereto. With
regard to Awards prior to May 1, 1991, and awards for the benefit of
participants who are not officers, the Committee, in its sole judgment,
may provide that a portion or all of the vested balance may be paid to
any Participant at such earlier time than termination as it may
determine provided that, after receiving a written request evidencing
purposes and need by a Participant for an earlier payment, the officer
of the Company having supervision over disbursement of the funds of the
Plan with the written approval of the President of the Company may pay
the Participant all or part of the requested amount from the
Participant's vested credit balance, when, in the judgment of said
officer and of the President of the Company, no substantive policy
issues are involved and the Participant's purposes as stated in such
written request are appropriate and the need is genuine. The payment
referred to in the fourth sentence of this Section shall be made in
cash in a lump sum or in installments (with interest on the unpaid
balance at a rate established in accordance with Section 7 hereof) as
may be determined by the Committee in its sole judgment, taking into
consideration any request received from the Participant as to the
Participant's financial circumstances and requirements. Upon the death
of a Participant, any payments due to such Participant thereafter shall
be made to such beneficiary or beneficiaries as the Participant has
designated (a) by written notice to the Company actually received by it
during the Participant's lifetime, or (b) in the Participant's will. In
the absence of any such designation, payments shall be to the
Participant's estate.
14. Miscellaneous
14.1 A Participant may not assign or transfer the right to receive
the payments provided for under the Plan other than by will or
the laws of descent and distribution. The terms of the Plan
shall be binding upon any successor to the Company's business,
whether by merger, sale of substantially all of the assets or
otherwise.
14.2 A Participant shall have the rights of an unsecured general
creditor with respect to amounts due under the Plan, and the
Company shall not be required to establish any trust fund or
separate bank account with respect to any amounts due under
the Plan.
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<PAGE>
14.3 The Plan does not constitute an employment agreement and shall
not entitle any employee who has participated in the Plan to
remain in the employ of the Company or to obtain damages if
employment is terminated.
14.4 A Participant shall be considered to be permanently and
totally disabled if, because of any mental or physical
incapacity, in the sole judgment of the Committee, such
Participant has been or will be unable substantially to
perform in the capacity for which previously employed for any
period of six consecutive months.
14.5 Within 120 days after the end of each fiscal year, the
Committee shall give each Participant a statement of the
amount of the credit balance of such Participant's account as
of the end of that year and all credits and charges to the
account during that year.
14.6 The Committee shall interpret and administer the provisions of
the Plan. All decisions of the Committee shall be final and
binding on both the Company and Participants in the Plan. The
Committee shall adopt such rules as it may determine
appropriate to regulate its affairs.
14.7 The Plan may be amended or terminated by the Board of
Directors of the Company at any time. If terminated, final
payment shall be made of the then existing credit balances of
the accounts, but said termination shall not accelerate the
payout or transfer of valuation shares from the credit balance
of any officer. Any amendment or termination shall not affect
a Participant's vested rights prior to such termination.
14.8 All notices pursuant to the Plan shall be in writing and shall
be deemed given when delivered personally or mailed by
registered mail, return receipt requested, to a Participant at
the Participant's last address set forth in the Company's
records, or to the Company at the address of its principal
office or such other address specified in a notice given
hereunder.
14.9 Except as provided in Sections 8 and 12 (g), all of the
provisions of the Plan are set forth herein and can be changed
or terminated only by the Board of Directors. The Plan shall
be governed by the laws of the State of Connecticut.
CITIZENS UTILITIES COMPANY
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APPENDIX A
CITIZENS UTILITIES COMPANY
MANAGEMENT EQUITY INCENTIVE PLAN
As Approved by the Compensation Committee
of the Board of Directors on
July 1, 1995
and Reflecting Amendments
Approved by the Board of Directors
Through July 1, 1995
<PAGE>
CITIZENS UTILITIES COMPANY
MANAGEMENT EQUITY INCENTIVE PLAN
Table of Contents
Section Page
1. Purpose A-1
2. Definitions A-1
3. Shares Subject to the Plan A-2
4. Grant of Awards and Award Agreements A-3
5. Stock Options and Stock Appreciation Rights A-4
6. Performance Shares A-6
7. Restricted Stock A-7
8. Deferred Stock A-8
9. Other Stock-Based Awards A-8
10. Certificates for Awards of Stock A-8
11. Beneficiary A-9
12. Administration of the Plan A-10
13. Amendment or Discontinuance A-10
14. Adjustments in Event of Change in Common Stock A-11
15. Miscellaneous A-11
16. Effective Date and Stockholder Approval A-12
<PAGE>
Section 1. Purpose
The purpose of the Citizens Utilities Company Management Equity
Incentive Plan (the "Plan") is to provide additional compensation
incentives for high levels of performance and productivity by management
employees of the Company's operations. The Plan is intended to strengthen the
Company's existing operations and its ability to attract and retain
outstanding management employees upon whose judgment, initiative and efforts
the continued success, growth and development of the Company is dependent. The
Plan would constitute the first incentive award plan of its type adopted by
the Company.
Section 2. Definitions
When used herein, the following terms shall have the following meanings:
(a) "Affiliate" means any company controlled by the
Company, controlling the Company or under common control with
the Company.
(b) "Award" means an award granted to any Eligible
Employee in accordance with the provisions of the Plan.
(c) "Award Agreement" means the written agreement
or certificate evidencing each Award granted to
an Eligible Employee under the Plan.
(d) "Beneficiary" means the beneficiary or
beneficiaries designated pursuant to Section 11 to
receive the amount, if any, payable under the
Plan upon the death of an Eligible Employee.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as
now in effect or as hereafter amended. (All citations to
Sections of the Code are to such Sections as they are
currently designated and reference to such Sections shall
include the provisions thereof as they may from time to time
be amended or renumbered and any successor provisions.)
(g) "Company" means Citizens Utilities Company, and its
successors and assigns.
(h) "Committee" means the Committee appointed by the
Board pursuant to Section 12.
(i) "Deferred Stock" means Stock credited to an
Eligible Employee under the Plan subject to the requirements
of Section 8 and such other restrictions as the
Committee deems appropriate or desirable.
(j) "Effective Date" means June 22, 1990.
(k) "Eligible Employee" means an employee of any
Participating Company whose responsibilities and
decisions in the judgment of the Committee, directly affect
the management, growth, performance or profitability of
any Participating Company. Where required by the context,
"Eligible Employee" includes an individual who has been
granted an Award but is no longer an employee of any
Participating Company.
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(l) "Fair Market Value" means, unless another reasonable
method for determining fair market value is specified by the
Committee, the average of the high and low sales prices of a
share of the appropriate Series of Stock as reported by the
NASDAQ National Market System (or if such hares are listed on
a national stock exchange or another national quotation
system, as reported or quoted by such exchange or system) for
the date in question or, if no such sales were reported for
such date, for the most recent date on which sales prices
were quoted.
(m) "Option" means an option to purchase Stock, including
Restricted Stock or Deferred Stock, if the Committee so
determines, subject to the applicable provisions of Section 5
and awarded in accordance with the terms of the Plan and which
may be an incentive stock option qualified under Section 422A
of the Code or a nonqualified stock option.
(n) "Participating Company" means the Company or any
subsidiary or other affiliate of the Company; provided
however, for incentive stock options only, "Participating
Company" means the Company or any corporation which at the
time such option is granted under the Plan qualifies as a
subsidiary of the Company under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
(o) "Performance Share" means a performance share subject to
the requirements of Section 6 and awarded in accordance with
the terms of the Plan.
(p) "Plan" means the Citizens Utilities Company Management
Equity Incentive Plan, as the same may be amended,
administered or interpreted from time to time.
(q) "Restricted Stock" means Stock delivered under the Plan
subject to the requirements of Section 7 and such other
restrictions as the Committee deems appropriate or desirable.
(r) "SAR" means a stock appreciation right subject to the
appropriate requirements under Section 5 and awarded in
accordance with the terms of the Plan.
(s) "Stock" means the Series A or Series B Common Stock
of the Company and any successor Common Stock.
(t) "Total Disability" means the complete and permanent
inability of an Eligible Employee to perform all of his or her
duties under the terms of his or her employment with any
Participating Company, as determined by the Committee upon the
basis of such evidence, including independent medical reports
and data, as the Committee deems appropriate or necessary.
Section 3. Shares Subject to the Plan
(a) The maximum number of shares of Stock which may be issued
pursuant to Awards under the Plan at any time is 5% of the
issued and outstanding shares of Stock as determined at that
time; provided that no more than 2.2 million shares of Stock
may be issued pursuant to incentive stock options under the
Plan. In the event that the number of shares of Stock subject
to Awards or issued at any time is in excess of the
above-stated 5% limit, the number need not be reduced if such
excess has resulted solely from a reduction in the amount of
issued and outstanding shares of Stock subsequent to the time
that such awards were granted or such shares were issued. Such
shares shall be made available either from authorized and
unissued shares, shares held by the Company in its treasury or
reacquired shares. The term "issued" shall include all
deliveries to an
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Eligible Employee of shares of Stock pursuant
to Awards under the Plan. The Committee may, in its
discretion, decide to award other shares issued by the Company
that are convertible into Stock or make such shares subject to
purchase by an Option, in which event the maximum number of
shares of Stock into which such shares may be converted shall
be used in applying the aggregate share limit under this
Section 3 and all provisions of the Plan relating to Stock
shall apply with full force and effect with respect to such
convertible shares.
(b) If, for any reason, any shares of Stock awarded or subject
to purchase or issuance under the Plan are not delivered or
are reacquired by the Company for reasons including, but not
limited to, a forfeiture of Restricted Stock or Deferred Stock
or termination, expiration or a cancellation of an Option, SAR
or a Performance Share, such shares of Stock shall be deemed
not to have been issued pursuant to Awards under the Plan.
(c) Shares of Stock received by the Company in connection with
the exercise of Options by delivery of shares or in connection
with the payment of withholding taxes shall reduce the number
of shares deemed to have been issued pursuant to Awards under
the Plan for the purpose of the 5% limit, but not for the
purpose of the 2.2 million share limit, both discussed in
Section 3(a) hereof.
Section 4. Grant of Awards and Award Agreements
(a) Subject to the provisions of the Plan, the Committee shall
(i) determine and designate from time to time those Eligible
Employees or groups of Eligible Employees to whom Awards are
to be granted; (ii) grant Awards to Eligible Employees; (iii)
determine the form or forms of Award to be granted to any
Eligible Employee; (iv) determine the amount or number of
shares of Stock, including Restricted Stock or Deferred Stock
if the Committee so determines, subject to each Award; (v)
determine the terms and conditions (which need not be
identical) of each Award; (vi) establish and modify
performance objectives; (vii) determine whether and to what
extent Eligible Employees shall be allowed or required to
defer receipt of any Awards or other amounts payable under the
Plan to the occurrence of a specified date or event; (viii)
determine the price at which shares of Stock may be offered
under each Award which price may, except in the case of
Options, be zero; (ix) interpret, construe and administer the
Plan and any related award agreement and define the terms
employed therein; and (x) make all of the determinations
necessary or advisable with respect to the Plan or any award
granted thereunder.
(b) Each Award granted under the Plan shall be evidenced by a
written Award Agreement, in a form approved by the Committee.
Such agreement shall be subject to and incorporate the express
terms and conditions, if any, required under the Plan or as
required by the Committee for the form of Award granted and
such other terms and conditions as the Committee may specify.
(c) The Committee may modify or amend any Awards (by
cancellation and regrant or substitution of Awards or
otherwise and with terms and conditions more or less favorable
to Eligible Employees) or waive any restrictions or conditions
applicable to any Awards or the exercise or realization
thereof (except that the Committee may not undertake any such
modifications, amendments or waivers if the effect thereof,
taken as a whole, adversely and materially affects the rights
of any recipient of previously granted Awards without his or
her consent, unless such modification, amendment or waiver is
necessary or desirable for the continued validity of the Plan
or its compliance with Rule 16b-3 or any successor rule under
the Securities Exchange Act of 1934 or any other rule or
regulation).
(d) The Committee may permit the voluntary surrender of all or
a portion of any Award granted under the Plan to be
conditioned upon the granting of a new Award. Any such new
Award shall be
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subject to such terms and conditions as are
specified by the Committee at the time the new Award is
granted, determined in accordance with the provisions of the
Plan without regard to the terms of the surrendered Award.
Section 5. Stock Options and Stock Appreciation Rights
(a) With respect to Options and SARs, the Committee shall (i)
authorize the granting of incentive stock options,
nonqualified stock options, SARs or a combination of incentive
stock options, non-qualified stock options and SARs; (ii)
determine the number of shares of Stock subject to each Option
or the number of shares of Stock that shall be used to
determine the value of a SAR; (iii) determine whether such
Stock shall be Restricted Stock or, with respect to
nonqualified stock options, Deferred Stock; (iv) determine the
time or times when and the manner in which each Option shall
be exercisable and the duration of the exercise period; and
(v) determine whether or not all or part of each Option may be
canceled by the exercise of a SAR; provided, however, that the
aggregate Fair Market Value (determined as of the date of
Option is granted) of the Stock (disregarding any restrictions
in the case of Restricted Stock) for which incentive stock
options granted to any Eligible Employee under this Plan may
first become exercisable in any calendar year shall not exceed
$100,000. Notwithstanding the foregoing, to the extent that
incentive stock options granted to an Eligible Employee under
this Plan for any reason exceed such limit on exercisability,
the options shall be treated as nonqualified stock options as
provided under Section 422A(d) of the Code, but shall in all
other respects remain outstanding and exercisable in
accordance with their terms.
(b) The exercise period for a nonqualified stock option or SAR
shall be ten years from the date of grant or such shorter
period as may be specified by the Committee at the time of
grant. The exercise period for an incentive stock option and
any related SAR, including any extension which the Committee
may from time to time decide to grant, shall not exceed ten
years from the date of grant; provided, however, that, in the
case of an incentive stock option granted to an Eligible
Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all
classes of stock of the Company (a "Ten Percent Stockholder"),
such period, including extensions, shall not exceed five years
from the date of grant.
(c) The Option or SAR price per share shall be determined by
the Committee at the time any Option is granted and shall be
not less than the Fair Market Value, or, in the case of an
incentive stock option granted to a Ten Percent Shareholder
and any related tandem SARs, 110 percent of the Fair Market
Value, disregarding any restrictions in the case of Restricted
Stock or Deferred Stock, on the date the Option is granted, as
determined by the Committee; provided, however, that such
price shall be at least equal to the par value of one share of
Stock.
(d) No part of any Option or SAR may be exercised until (i)
the Eligible Employee who has been granted the Award shall
have remained in the employ of a Participating Company for
such period, if any, after the date on which the Option or SAR
is granted, and (ii) achievement of such performance or other
criteria, if any, by the Eligible Employee, as the Committee
may specify, and during which a SAR or related Option is
exercisable shall commence no earlier than six months
following the date the Option or SAR is granted.
(e) Except as otherwise provided in the Plan, the purchase
price of the shares as to which an Option shall be exercised
shall be paid to the Company at the time of exercise either in
cash or in such other consideration as the Committee deems
appropriate, including, Stock, or, with respect to
nonqualified options, Restricted Stock or Deferred Stock,
already owned by the optionee (subject to any minimum holding
period specified by the Committee), having a total fair market
value, as
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<PAGE>
determined by the Committee, equal to the purchase
price, or a combination of cash and such other consideration
having a total fair market value, as so determined, equal to
the purchase price; provided, however, that if payment of the
exercise price is made in whole or in part in the form of
Restricted Stock or Deferred Stock, the Stock received upon
the exercise of the Option shall be Restricted Stock or
Deferred Stock, as the case may be, at least with respect to
the same number of shares and subject to the same restrictions
or other limitations as the Restricted Stock or Deferred Stock
paid on the exercise of the Option. The Committee may provide
that an Eligible Employee who pays the exercise price of an
Option, or the withholding taxes relating to an Option
exercise, with shares of Stock, shall receive a replacement
Option to purchase a number of shares of Stock equal to the
number of shares so paid to the Company. The replacement
Option shall have an exercise price equal to Fair Market Value
on the date of such payment and shall include such other terms
and conditions as the Committee may specify.
(f) (i) Upon the death of a Stock Option grantee
whose estate is not eligible to receive retirement
benefits, Stock Option privileges shall only apply to
those shares which were immediately exercisable at
the time of death and such exercise or exercises
must take place within the time limits set forth in
the Plan. The Committee, however, in its discretion,
may provide that any Stock Options outstanding but
not yet exercisable upon the death of a Stock Option
grantee may become exercisable in accordance with a
schedule to be determined by the Committee. Such
privileges shall expire unless exercised by legal
representatives within a period of time as determined
by the Committee but in no event later than the
expiration date of the Stock Option.
(ii) Upon Retirement of a Stock Option
grantee who is eligible to retire under the Citizens
Pension Plan, Stock Option privileges as set forth in
the grantee's Stock Option Award Agreement(s) shall
apply to all shares outstanding but not yet
exercisable. Subsequent death of such a
terminated/retired employee shall not have any effect
under the Plan on the Stock Option rights that were
held at the time of death. Stock Option privileges
shall expire unless exercised on the expiration date
of the Stock Option. The death of a Stock Option
grantee who would otherwise have been eligible to
retire under the Citizens Pension Plan but remains
employed by Citizens shall, for the purposes of this
paragraph, be deemed a retirement.
(iii) Upon the termination of a Stock Option
grantee's employment (for any reason other than
retirement, death or termination for deliberate,
willful or gross misconduct), Stock Option privileges
shall be limited to the shares which were exercisable
on the date of such termination and such exercise or
exercises must take place within the time limits set
forth in the Plan (90 days). The Committee, however,
in its discretion, may provide that any Stock
Options(s) outstanding but not vested and exercisable
upon the termination of a Stock Option grantee's
employment may become exercisable in accordance with
a schedule to be determined by the Committee. Such
Stock Option(s) shall expire unless exercised within
such period of time after the date of termination of
employment as may be established by the Committee,
but in no event later than the expiration date(s) of
the Stock Option(s) as specified in the grantee's
Stock Option Award Agreement(s). If a Stock Option
grantee's employment is terminated for deliberate,
willful or gross misconduct, as determined by the
Company, all rights to the Stock Option(s) shall
expire upon receipt of the notice of such
termination.
(g) No Option or SAR granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution. During the lifetime of the optionee, an Option
shall be exercisable only by him or her by his or her guardian
or legal representative.
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(h) With respect to an incentive
stock option, the Committee shall specify such terms and
provisions as the Committee may determine to be necessary or
desirable in order to qualify such Option as an incentive
stock option within the meaning of Section 422A of the Code.
(i) Upon exercise of a SAR, the Eligible Employee shall be
entitled, subject to such terms and conditions as the
Committee may specify at any time, to receive upon exercise
thereof all or a portion of the excess of (i) the Fair Market
Value of a specified number of shares of Stock at the time of
exercise, as determined by the Committee, over (ii) a
specified amount which shall not, subject to Section 5(j), be
less than the Fair Market Value of such specified number of
shares of Stock at the time the SAR is granted. Upon exercise
of a SAR, payment of such excess shall be made as the
Committee shall specify (A) in cash, (B) through the issuance
or transfer to the Eligible Employee of whole shares of Stock,
including Restricted Stock or Deferred Stock, with a Fair
Market Value, disregarding any restrictions in the case of
Restricted Stock or Deferred Stock, at such time equal to any
such excess, or (C) a combination of cash and shares of Stock
with a combined fair market value at such time equal to such
excess, all as determined by the Committee; provided, however,
a fractional share of Stock shall be paid in cash equal to the
Fair Market Value of the fractional share of Stock,
disregarding any restrictions in the case of Restricted Stock
or Deferred Stock, at such time.
(j) If the Award granted to an Eligible Employee allows the
Eligible Employee to elect to cancel all or any portion of an
unexercised Option by exercising a related SAR, then the
Option price per share of Stock shall be used as the specified
price in Section 5(i), to determine the value of the SAR upon
such exercise, and, in the event of the exercise of such SAR,
the Company's obligation in respect of such Option or such
portion thereof will be discharged by payment of the SAR so
exercised.
If authorized by the Committee in its sole discretion, the
Company may accept the surrender of the right to exercise any
Option granted under the Plan (whether or not granted with a
related SAR) as to all or any of the shares of Stock as to
which the Option is then exercisable, in exchange for payment
to the optionee (in cash or shares of Stock value at the then
Fair Market Value) of an amount not to exceed the difference
between the option price and the then Fair Market Value of the
shares as to which such rights of exercise is surrendered.
Section 6. Performance Shares
(a) The Committee shall determine a performance period (the
"Performance Period") of one or more years and shall determine
the performance objectives for grants of Performance Shares.
Performance objectives may vary from Eligible Employee to
Eligible Employee and between groups of Eligible Employees and
shall be based upon such performance criteria or combination
of factors as the Committee may deem appropriate. Performance
Periods may overlap and Eligible Employees may participate
simultaneously with respect to Performance Shares for which
different Performance Periods are prescribed.
(b) At the beginning of a Performance Period, the Committee
shall determine for each Eligible Employee or group of
Eligible Employees with respect to that Performance Period the
range of dollar values, if any, which may be fixed or may vary
in accordance with such performance or other criteria
specified by the Committee, which shall be paid to an Eligible
Employee as an Award if the relevant measure of Company
performance for the Performance Period is met.
(c) If during the course of a Performance Period there shall
occur significant events as determined by the Committee,
including, but not limited to, a reorganization of the
Company, which the
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Committee expects to have a substantial
effect on a performance objective during such period, the
Committee may revise such objective.
(d) If an Eligible Employee terminates service with all
Participating Companies during a Performance Period because of
death, Total Disability, or a significant event, as determined
by the Committee, that Eligible Employee shall be entitled to
payment in settlement of each Performance Share for which the
Performance Period was prescribed (i) based upon the
performance objectives satisfied at the end of such period and
(ii) prorated for the portion of the Performance Period during
which the Eligible Employee was employed by any Participating
Company; provided, however, the Committee may provide for an
earlier payment in settlement of such Performance Share in
such amount and under such terms and conditions as the
Committee deems appropriate or desirable with the consent of
the Eligible Employee. If an Eligible Employee terminates
service with all Participating Companies during a Performance
Period for any other reason, then such Eligible Employee shall
not be entitled to any payment with respect to that
Performance Period unless the Committee shall otherwise
determine.
(e) Each Performance Share may be paid in whole shares of
Stock, including Restricted Stock or Deferred Stock (together
with any cash representing fractional shares of Stock), or
cash, or a combination of Stock and cash either as a lump sum
payment or in annual installments, all as the Committee shall
determine, at the time of grant of the Performance Share or
otherwise, commencing as soon as practicable after the end of
the relevant Performance Period.
Section 7. Restricted Stock
(a) Restricted Stock may be received by an Eligible Employee
either as an Award or as the result of an exercise of an
Option or SAR or as payment for a Performance Share.
Restricted Stock shall be subject to a restriction period
(after which restrictions shall lapse) which shall mean a
period commencing on the date the Award is granted and ending
on such date or upon the achievement of such performance or
other criteria as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse
of restrictions in installments where deemed appropriate.
(b) Except as otherwise provided in this Section 7, no shares
of Restricted Stock received by an Eligible Employee shall be
sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of during the Restriction Period; provided,
however, the Restriction Period for any Eligible Employee
shall expire and all restrictions on shares of Restricted
Stock shall lapse upon the Eligible Employee's death, Total
Disability or retirement on or after age 65 or an earlier age
with the consent of the Company, or upon some significant
event, as determined by the Committee, including, but not
limited to, a reorganization of the Company.
(c) If an Eligible Employee terminates employment with all
Participating Companies for any reason before the expiration
of the Restriction Period, all shares of Restricted Stock
still subject to restriction shall, unless the Committee
otherwise determines, be forfeited by the Eligible Employee
and shall be reacquired by the Company, and, in the case of
Restricted Stock purchase through the exercise of an Option,
the Company shall refund the purchase price paid on the
exercise of the Option.
(d) The Committee may require under such terms and conditions
as it deems appropriate or desirable that the certificates for
Stock delivered under the Plan may be held in custody by a
bank or other institution, or that the Company may itself hold
such shares in custody until the Restriction Period expires or
until restrictions thereon otherwise lapse, and may require,
as a condition of any receipt
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of Restricted Stock that the
Eligible Employee shall have delivered a stock power endorsed
in blank relating to the Restricted Stock.
(e) Nothing in this Section 7 shall preclude an Eligible
Employee from exchanging any shares of Restricted Stock
subject to the restrictions contained herein for any other
shares of Stock that are similarly restricted.
Section 8. Deferred Stock
(a) Deferred Stock may be credited to an Eligible Employee
either as an Award or as the result of an exercise of an
Option or SAR or as payment for a Performance Share. Deferred
Stock shall be subject to a deferral period which shall mean a
period commencing on the date the Award is granted and ending
on such date or upon the achievement of such performance or
other criteria as the Committee shall determine (the "Deferral
Period"). The Committee may provide for the expiration of the
Deferral Period in installments where deemed appropriate.
(b) Except as otherwise provided in this Section 8, no
Deferred Stock credited to an Eligible Employee shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise
disposed of during the Deferral Period; provided, however, the
Deferral Period for any Eligible Employee shall expire upon
the Eligible Employee's death, Total Disability or retirement
on or after age 65 or an earlier age with the consent of the
Company, or upon some significant event, as determined by the
Committee, including, but not limited to, a reoganization of
the Company.
(c) At the expiration of the Deferred Period, the Eligible
Employee shall be entitled to receive a certificate pursuant
to Section 10 for the number of shares of Stock equal to the
number of shares of Deferred Stock credited on his or her
behalf. Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares of
Deferred Stock credited to an Eligible Employee shall be paid
to such Eligible Employee within 30 days after each dividend
was declared unless, at the time of the Award the Committee
determined that such dividends shall be reinvested in
additional shares of Deferred Stock, in which case additional
shares of Deferred Stock shall be credited to the Eligible
Employee based on the Stock's Fair Market Value at the time of
each such dividend.
(d) If an Eligible Employee terminates employment with all
Participating Companies for any reason before the expiration
of the Deferred Period, all shares of Deferred Stock shall,
unless the Committee otherwise determines, be forfeited by the
Eligible Employee, and, in the case of Deferred Stock
purchased through the exercise of an Option, the Company shall
refund the purchase price paid on the exercise of the Option.
Section 9. Other Stock-Based Awards
The Committee may grant other Awards under the Plan which are
denominated in stock units or pursuant to which shares of Stock may be acquired,
including Awards valued using measures other than market value, if deemed by the
Committee in its discretion to be consistent with the purposes of the Plan.
Subject to the terms of the Plan, the Committee shall determine the form of such
Awards, the number of shares of Stock to be granted or covered pursuant to such
Awards and all other terms and conditions of such Awards.
Section 10. Certificates for Awards of Stock
(a) Subject to Section 7(d), each Eligible Employee entitled
to receive shares of Stock under the Plan shall be issued a
certificate for such shares. Such certificate shall be
registered in the name of the
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Eligible Employee, and shall bear an appropriate legend
reciting the terms, conditions and restrictions, if any,
applicable to such shares and shall be subject to appropriate
stop-transfer orders.
(b) The Company shall not be required to issue or deliver any
certificates for shares of Stock prior to (i) the listing of
such shares on any stock exchange or quotation system on which
the Stock may then be listed or quoted and (ii) the completion
of any registration, qualification, approval or authorization
of such shares under any federal or state law, or any ruling
or regulation or approval or authorization of any governmental
body which the Company shall, in its sole discretion,
determine to be necessary or advisable.
(c) All certificates for shares of Stock delivered under the
Plan shall also be subject to such stop-transfer orders and
other restrictions as the Committee may deem advisable under
the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or
state securities laws, and the Committee may cause a legend or
legends to be placed on any such certificates to make
appropriate reference to such restrictions. The foregoing
provisions of this Section 10(c) shall not be effective if and
to the extent that the shares of Stock delivered under the
Plan are covered by an effective and current registration
statement under the Securities Act of 1933, or if so long as
the Committee determines that application of such provisions
is no longer required or desirable. In making such
determination, the Committee may rely upon an opinion of
counsel for the Company.
(d) Except for the restrictions on Restricted Stock or
Deferred Stock under Sections 7 and 8, each Eligible Employee
who receives an award of Stock shall have all of the rights of
a shareholder with respect to such shares, including the right
to vote the shares and receive dividends and other
distributions. No Eligible Employee awarded an Option, a SAR
or Performance Share or Deferred Stock shall have any right as
a shareholder with respect to any shares subject to such Award
prior to the date of issuance to him or her of certificate or
certificates for such shares.
Section 11. Beneficiary
(a) Each Eligible Employee shall file with the Committee a
written designation of one or more persons as the Beneficiary
who shall be entitled to receive the Award, if any, payable
under the Plan upon his or her death. An Eligible Employee may
from time to time revoke or change his or her Beneficiary
designation without the consent of any prior Beneficiary by
filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling;
provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the
Committee prior to the Eligible Employee's death, and in no
event shall it be effective as of a date prior to such
receipt.
(b) If no such Beneficiary designation is in effect at the
time of an Employee's death, or if no designated Beneficiary
survives the Eligible Employee or if such designation
conflicts with law, the Eligible Employee's estate shall be
entitled to receive the Award, if any, payable under the Plan
upon his or her death. If the Committee is in doubt as to the
right of any person to receive such Award, the Company may
retain such Award, without liability for any interest thereon,
until the Committee determines the right thereto, or the
Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of
the liability of the Company therefor.
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<PAGE>
Section 12. Administration of the Plan
(a) The Plan shall be administered by the Committee, as
appointed by the Board and serving at the Board's pleasure.
Each member of the Committee shall be both a member of the
Board and a "disinterested person" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934 or any
successor rule or regulation.
(b) All decisions, determinations or actions of the Committee
made or taken pursuant to grants of authority under the Plan
shall be made or taken in the sole discretion of the Committee
and shall be final, conclusive and binding on all persons for
all purposes.
(c) The Committee shall have full power, discretion and
authority to interpret, construe and administer the Plan and
any part thereof and any related Award agreement and define
the terms employed in the Plan or any agreement, and its
interpretations and constructions thereof and actions taken
thereunder shall be, except as otherwise determined by the
Board, final, conclusive and binding on all persons for all
purposes.
(d) The Committee shall have full power, discretion and
authority to prescribe and rescind rules, regulations and
policies for the administration of the Plan.
(e) The Committee's decisions and determinations under the
Plan and with respect to any Award granted thereunder need not
be uniform and may be made selectively among Eligible
Employees, whether or not such Eligible Employees are
similarly situated.
(f) The Committee shall keep minutes of its actions under the
Plan. The act of a majority of the members present at a
meeting duly called and held shall be the act of the
Committee. Any decision or determination reduced to writing
and signed by all members of the Committee shall be fully as
effective as if made by unanimous vote at a meeting duly
called and held.
(g) The Committee may employ such legal counsel, including
without limitation independent legal counsel and counsel
regularly employed by the Company, consultants and agents as
the Committee may deem appropriate for the administration of
the Plan and may rely upon any opinion received from any such
counsel or consultant and any computations received from any
such consultant or agent. All expenses incurred by the
Committee in interpreting and administering the Plan,
including without limitation, meeting fees and expenses and
professional fees, shall be paid by the Company.
(h) No member or former member of the Committee or the Board
shall be liable for any action or determination made in good
faith with respect to the Plan or any Award granted under it.
Each member or former member of the Committee or the Board
shall be indemnified and held harmless by the Company against
all cost or expense (including counsel fees and expenses) or
liability (including any sum paid in settlement of a claim
with the approval of the Board) arising out of any act or
omission to act in connection with the Plan unless arising out
of such member's or former member's own fraud or bad faith.
Such indemnification shall be in addition to any rights to
indemnification or insurance the members or former members may
have as directors or under the by-laws of the Company or
otherwise.
Section 13. Amendment or Discontinuance
The Board may, at any time, amend or terminate the Plan. The Plan may
also be amended by the Committee, provided that all such amendments shall be
reported to the Board. No amendments shall become
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<PAGE>
effective unless approved by affirmative vote of the Company's stockholders if
such approval is necessary or desirable for the continued validity of the
Plan or if the failure to obtain such approval would adversely affect the
compliance of the Plan with Rule 16b-3 or any successor rule under the
Securities Exchange Act of 1934 or any other rule or regulation. No amendment
or termination shall, when taken as a whole, adversely and materially
affect the rights of any recipient of a previously granted award without his
or her consent unless the amendment or termination is necessary or desirable
for the continued validity of the Plan or its compliance with Rule 16b-3 or
any successor rule under the Securities Exchange Act of 1934 or any other rule
or regulation.
Section 14. Adjustments in Event of Change in Common Stock
In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock, merger or consolidation of the Company or sale
by the Company of all or a portion of its assets, or other event which could
distort the implementation of the Plan or the realization of its objectives, the
Committee may make such appropriate adjustments in the number and kind of
securities which may be issued pursuant to Awards under the Plan, including
Awards then outstanding, or the terms, conditions or restrictions on securities
or Awards as the Committee deems equitable.
Section 15. Miscellaneous
(a) Nothing in this Plan or any Award granted hereunder shall
confer upon any employee any right to continue in the employ
of any Participating Company or interfere in any way with the
right of any Participating Company to terminate his or her
employment at any time.
(b) No Award payable under the Plan shall be deemed salary or
compensation for the purpose of computing benefits under any
employee benefit plan or other arrangement of any
Participating Company for the benefit of its employees unless
the Company shall determine otherwise.
(c) No Eligible Employee shall have any claim to an Award
until it is actually granted under the Plan. To the extent
that any person acquires a right to receive payments from the
Company under this Plan, such right shall be no greater than
the right of an unsecured general creditor of the Company. All
payments of Awards provided for under the Plan shall be paid
by the Company either by issuing shares of Stock or by
delivering cash from the general funds of the Company or other
property of the Company; provided, however, that such payments
shall be reduced by the amount of any payments made to the
participant or his or her dependents, beneficiaries or estate
from any trust or special or separate fund established in
connection with this Plan. The Company shall not be required
to establish a special or separate fund or other segregation
of assets to assure such payments, and, if the Company shall
make any investments to aid it in meeting its obligations
hereunder, the participant shall have no right, title, or
interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written
instrument relating to such investments.
(d) Absence on leave approved by a duly constituted officer of
the Company shall not be considered interruption or
termination of employment for any purposes of the Plan;
provided, however, that no Award may be granted to an employee
while he or she is absent on leave.
(e) If the Committee shall find that any person to whom any
Award, or portion thereof, is payable under the Plan is unable
to care for his or her affairs because of illness or accident,
or is a minor, then any payment due him or her (unless a prior
claim therefor has been made by a duly appointed legal
representative) may, if the Committee so directs the Company,
be paid to his or her spouse, a child, a relative, an
institution maintaining or having custody of such person, or
any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to
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payment. Any such payment shall be a complete discharge of the
liability of the Company therefor.
(f) The right of any Eligible Employee or other person to any
Award payable under the Plan may not be assigned, transferred,
pledged or encumbered, either voluntarily or by operation of
law, except as provided in Section 11 with respect to the
designation of a Beneficiary or as may otherwise be required
by law. If, by reason of any attempted assignment, transfer,
pledge, or encumbrance or any bankruptcy or other event
happening at any time, any amount payable under the Plan would
be made subject to the debts or liabilities of the Eligible
Employee or his or her Beneficiary or would otherwise devolve
upon anyone else and not be enjoyed by the Eligible Employee
or his or her Beneficiary, then the Committee may terminate
such person's interest in any such payment and direct that the
same be held and applied to or for the benefit of the Eligible
Employee, his or her Beneficiary or any other persons deemed
to be the natural objects of his or her bounty, taking into
account the expressed wishes of the Eligible Employee (or, in
the event of his or her death, those of his or her
Beneficiary) in such manner as the Committee may deem proper.
(g) Copies of the Plan and all amendments, administrative
rules and procedures and interpretations shall be made
available for review to all Eligible Employees at all
reasonable times at the Company's administrative offices.
(h) The Committee may cause to be made, as a condition
precedent to the payment of any Award, or otherwise,
appropriate arrangements with the Eligible Employee or his or
her Beneficiary, for the withholding of any federal, state,
local or foreign taxes. The Committee may in its discretion
permit the payment of such withholding taxes by authorizing
the Company to withhold shares of Stock to be issued, or by
delivering to the Company shares of Stock owned by the
Eligible Employee or Beneficiary, in either case having a Fair
Market Value equal to the amount of such taxes.
(i) The Plan and the grant of Awards shall be subject to all
applicable federal and state laws, rules, and regulations and
to such approvals by any governmental or regulatory agency as
may be required.
(j) All elections, designations, requests, notices,
instructions and other communications from an Eligible
Employee, Beneficiary or other person to the Committee,
required or permitted under the Plan, shall be in such form as
is prescribed from time to time by the Committee and shall be
mailed by first class mail or delivered to such location as
shall be specified by the Committee.
(k) The terms of the Plan shall be binding upon the
Company and its successors and assigns.
(l) Captions preceding the sections hereof are inserted solely
as a matter of convenience and in no way define or limit the
scope or intent of any provision hereof.
Section 16. Effective Date and Stockholder Approval
The Effective Date of the Plan shall be June 22, 1990, subject to
approval by the holders of a majority of the Company's common stock at the 1990
Annual Meeting. No awards will be granted under the Plan after the expiration of
ten years from the Effective Date.
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EXHIBIT NO. 12
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Statement Showing Computation of Ratio of Earnings
to Fixed Charges for the year ended
December 31, 1995
(dollars in thousands)
A. Net income per Consolidated Statement of Income $159,536
B. Taxes based on income or profits 66,817
C. Earnings, before income taxes (A + B) 226,353
D. Fixed charges 94,227
E. Earnings before income taxes and fixed charges (C + D) $320,580
F. Ratio of pre-tax income to net income (C / A) 1.42
G. Ratio of Earnings to Fixed charges (E / D) 3.40
EMPLOYMENT AGREEMENT
between
CITIZENS UTILITIES COMPANY
and
LEONARD TOW
As of July 1, 1990
Exhibit "A"
<PAGE>
THIS AGREEMENT entered into on March 29, 1991, as of July 1, 1990 by and
between CITIZENS UTILITIES COMPANY, a Delaware Corporation with offices at
High Ridge Park, Stamford, CT 06905 (the "Company") and LEONARD TOW, an
individual residing at 160 Lantern Ridge Road, New Canaan, CT 06840 (the
"Executive").
W I T N E S S E T H
WHEREAS:
A. The Executive has been a member of the Board of Directors of the Company and
Chairman of the Executive Committee of the Board of Directors of the Company
since April of 1989;
B. On June 22, 1990, the Executive was elected Chairman of the Board of the
Company and designated chief executive officer of the Company effective on July
1, 1990 and is currently acting as such Chairman and chief executive officer and
is so acting to the full satisfaction of the Company;
C. The Company desires that the Executive remain and continue as its chief
executive officer and to have the benefit of the Executive's advice after his
retirement as a consultant on matters of importance to the Company;
D. The Company believes that in order to obtain, motivate and retain the
services of the Executive and of key employees generally, it is necessary that
benefits available upon retirement be equitable and that the Executive
2598A.2. 3/8/91
<PAGE>
and other key employees be given the opportunity to acquire shares of the
Common Stock of the Company;
E. By reason of age the Executive is not eligible to participate in the
Company's pension plan and, by reason of his first being employed by the Company
as of July 1, 1990, can only participate for a limited number of years in the
Company's Senior Management Incentive Deferred Compensation Plan, and the
Company is desirous of providing benefits to the Executive which will take into
account such ineligibility and limited participation;
F. The Executive has served as Chairman of the Board of the Company since June
22, 1990 and as its chief executive officer since July 1, 1990. During the same
period of time Executive has served as Chairman of the Board and chief executive
officer of Century Communications Corp., a Delaware Corporation ("Century"). The
Company acknowledges that during this period when acting as both Chairman and
chief executive officer of the Company and of Century, the Executive has
performed his services to the Company to the full satisfaction of the Board of
Directors of the Company, and the Company is aware that the Executive may
continue to serve as Chairman of the Board and Chief Executive Officer of
Century during the full term of Executive's employment by the Company, and is
agreeable to Executive continuing to act in such capacities with Century and
various of Century's subsidiaries and affiliated Companies during his employment
by the Company; and
2598A. 3. 3/8/91
<PAGE>
G. The Company is desirous of employing the Executive as its Chief Executive
Officer under the terms and provisions set forth herein effective July 1, 1990
and the Executive is willing to accept such employment.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained and other good and valuable consideration, each to
the other in hand paid and the receipt and adequacy of which is mutually
acknowledged, the parties agree as follows:
1. Employment: Duties.
(a) The Company hereby employs the Executive and the Executive hereby accepts
such employment, for the duration of the Term (as hereafter defined) and upon
the terms and conditions hereafter provided, as chief executive of the Company.
As such chief executive, the Executive shall be in charge of and have final
authority and responsibility for all phases of the activities, operations and
business of the Company and its subsidiaries, subject only to such authority and
responsibility which under applicable law cannot be delegated and which may only
be exercised by the Board of Directors. The Executive shall be the senior
officer of the Company and report directly to the Board of Directors, and no
officer of the Company shall have authority and responsibility greater than or
senior to the Executive. All officers, employees and other personnel shall
report directly or indirectly to the Executive.
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<PAGE>
(b) During the Term (as herein defined) the Executive shall be designated as the
Chairman of the Board of the Company and the By-Laws of the Company shall
provide that the Chairman of the Board shall be the Chief Executive Officer of
the Company. Additionally, during the Term, the Executive agrees to serve, if it
is mutually determined to be appropriate and for the period for which he is and
from time-to-time shall be elected, as an officer and director of any subsidiary
or affiliate of the Company, and if elected to such, agrees to serve and
continue to serve as a director and as a member of any committee of the Board
of Directors of the Company, for which Executive shall be entitled to be paid
and receive directors fees and fees for acting as member of one or more
committees of the Board.
(c) The Company shall use its best efforts to cause the Executive to be a member
of its Board of Directors throughout the Term, shall include him in the
management slates for election as a director at every stockholders' meeting at
which his term for director would otherwise expire and shall not take any action
to reduce the scope of the Executive's authority, position, functions, duties
and responsibilities from that which is contemplated hereby, unless he shall
otherwise consent in writing.
2. Term.
The term of the Executive's employment under this Agreement shall commence
on July 1, 1990 and expire on December 31, 1996, (the "Term").
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<PAGE>
3. Compensation, Expenses and Benefits.
For services rendered by the Executive during the period of his employment under
this Agreement, the Executive shall be paid the compensation, benefits and
expenses provided in Sections 3(a), (b), (d) and (e). Additionally, Executive
shall also be entitled to the other payments and benefits set forth in other
sections of this Agreement.
(a) Base Salary.
The Company shall pay to the Executive a base salary ("Base Salary") as follows:
The Base Salary for the first six months of the Term shall be payable at the
rate of $495,000 per year, and the Base Salary for calendar year 1991 shall be
$800,000. For each of the remaining years of the Term the Base Salary shall be
equal to the greater of (i) 110% of the Base Salary for the immediately
preceding year, and (ii) the product obtained by multiplying the percentage
increase in the Consumer Price Index, as hereafter defined, from the first day
of the immediately preceding year to the first day of the particular applicable
year of the remaining years, by the Base Salary for the immediately preceding
year, plus the amount of the Base Salary for the immediately preceding year. The
Base Salary shall be payable currently in accordance with the customary payroll
practices of the Company but in no event less frequently than monthly and shall
be subject to such withholdings as may be required by applicable law.
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<PAGE>
(b) Benefits and Other Plans.
(i) Participation in Plans - Generally.
In addition to his Base salary, the executive shall participate in the 401(k)
Plan of the Company, the Senior Management Incentive Deferred Compensation Plan
of the Company (as provided for in Section 3(b)(ii)) and any retirement income
or pension, profit sharing, medical, hospitalization, major medical, health,
dental and eye care plans, sick leave, life or other insurance or death benefit,
travel and accident insurance, termination pay, vacation, auto allowance, and
any other fringe or employee benefit plans, programs and practices of the
Company or its subsidiaries (collectively, "the Plans" and individually a
"Plan") for which the Esecutive is or other key executives are or shall become
eligible. Except as otherwise provided in this Agreement, in all instances where
salary is relevant, the awards to be made to the Esecutive, all contributions of
the Company and all other benefits will be determined on the basis of
Executive's then Base Salary, as provided in Section 3(a), together with any
bonus awarded pursuant to Section 4 during the immediately preceding year of the
Term (or for the first full year of the Term if same is the applicable year).
(ii) Senior Managerial Incentive Deferred
Compensation Plan ("SMIDCP").
Executive shall be eligible to and shall be selected to participate in the
SMIDCP during the Term
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with the understanding that the vested portion of the credit balance in
Executive's account as of a particular date shall be equal to the vested balance
in such account in accordance with the SMIDCP multiplied by five. The full
credit balance in Executive's account shall become vested in any year in which
Executive's employment by the Company terminates for any reason if not
previously vested, and the amount credited for the year of termination shall be
deemed vested.
(iii) Life and Accident Insurance.
A. The Company shall provide Executive
with insurance on his life in the principal sum of the greater of (i)
$3,000,000 and (ii) the amount determined under the formula applicable to
Company executives (i.e., annualized salary x 4.2, plus $18,000) in accordance
with Company policy and practice, and pay the premiums thereon (whether at
standard or other than standard rates) and otherwise keep and maintain same in
full force and effect during the Term and the Advisory Period, with companies
licensed to do business and underwrite policies of life insurance in the State
of Connecticut, and with the beneficiary or beneficiaries to be designated by
Executive. At the expiration or prior termination of the Term and the Advisory
Period (but subject to Executive's rights under Sections 8, 9 and 10), Executive
in his discretion shall have the right to purchase the policy or policies of
insurance on his life at the then interpolated terminal reserve value thereof.
Provided that in the event Executive is not insurable
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at any premium cost therefor, the Company shall pay over the sum of $3,000,000
(the "Insurance Payment") to designated beneficiaries of Executive or
Executive's legal representatives, at his death, whether such death occurs
before or after the expiration or prior termination of the Term and the Advisory
Period.
B. Additionally, the Executive and his spouse shall each be entitled to coverage
in the amount of $1,000,000 under the Company's paid Business Travel Accident
Insurance Plan during the period of Executive's employment hereunder and
thereafter when traveling on Company matters, with the beneficiary or
beneficiaries to be designated by Executive and his spouse respectively.
(iv) Options.
The Company confirms the prior award to the Executive effective on November 1,
1990, under the Company's Management Equity Incentive Plan (the "Incentive
Plan") of (A) options, which shall be classified as incentive stock options, to
acquire 350,000 shares of the Company's Common Stock Series B, none of which
shall be classified as Deferred Stock or Restricted Stock under the Incentive
Plan, at a price per share equal to the Fair Market Value thereof, as defined in
the Incentive Plan, on November 1, 1990 and (B) Stock Appreciation Rights
("SARs") under the Incentive Plan to cover all of said shares. It is confirmed
further that said options became exercisable in their entirety on March 15, 1991
2598A. 9. 3/8/91
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and may be exercised at any time thereafter up to the date which is ten years
from the date of grant (subject in the instance of termination of this Agreement
for "good cause" (as hereafter defined) by the Company or voluntarily by the
Executive without a breach by the Company, to the shorter period set forth in
the Incentive Plan), and shall grant to the Executive the right to elect to
cancel all or any portion of any option by exercising a related SAR, upon which
exercise, payment in the amount provided for in the Incentive Plan shall be made
to Executive or his legal representatives, in cash.
(v) Payments and Distributions under Compensation and Benefit Plans.
Any provision in the 401(k) Plan and the SMIDCP Plan to the contrary
notwithstanding (subject, however, to the provisions of Section 7 and provided
with respect to the 401(k) Plan that same does not result in the
disqualification of such plan as a Qualified Plan under the United States
Internal Revenue Code of 1986, as amended (the "Code")), payments will be made
to the Executive of the entire balances in his accounts under the SMIDCP and the
401(k) Plan on the date of termination of employment of the Executive for
whatever reason or as soon as practicable thereafter in the instance of the
401(k) Plan, or if the Executive shall designate a later date or later dates for
any of said payments, on such later date or dates. The amount of the Executive's
credit balance in the SMIDCP on the date of payment shall include, in addition
to all past contributions and interest and
2598A. 10. 3/8/91
<PAGE>
the amounts referenced in Section 3(b)(ii), a contribution (which shall be made
by the Company) and interest, which shall be credited, for the first year of the
Term for the period from commencement of the Term to the end of the fiscal year
of the Company in which the Term commences and for the period from the first
day of the fiscal year of the Company in which the last day of the Term falls to
the expiration or termination of the Term.
(vi) Nonforfeitabilits.
Subject to the provisions of Section 7, the Executive's benefits under any Plan
which does not expressly provide for non-forfeitability of benefits, for any
reason, and/or under the provisions of this Agreement, shall not be subject to
forfeiture except as expressly provided for in Section 5(b), notwithstanding any
provision to the contrary in such plan for forfeiture or divestiture of benefits
or compensation.
(c) Accoutrements of Office.
Executive shall also be entitled to all accoutrements of office that are
generally made available to chief executive officers of publicly held companies
of the size of the Company, including without limitation an office, office
furnishings, secretaries, and support and other personnel and assistance,
transportation and any and all other services and facilities made available to
Executive's immediate predecessor in office.
2598A. 11. 3/8/91
<PAGE>
(d) Expenses; Tax and Other Services.
(i) It is expected that in carrying out his duties on behalf of the Company,
Executive from time to time will incur expenses, certain of which are difficult
or impossible to itemize. Accordingly, and consistent with the Company's prior
practice with respect to the Company's two immediately preceding chief executive
officers, Executive shall be paid the sum of $50,000 for expenses in connection
with his services for which he is not required to account to the Company. In
addition, the Company will promptly pay, and if not paid, reimburse Executive
upon reasonable substantiation, for all other expenses, including without
limitation, travel and business entertainment expenses, incurred by Executive on
behalf of or in connection with the conduct of the business of the Company. The
Company shall provide Executive with the use of and shall pay all costs of
maintenance and repair of an automobile of Executive's choosing, and a driver,
in connection with the rendition and performance of Executive's services.
(ii) To enable the Executive to render the most effective services practicable
and to facilitate appropriate financial planning, and consistent with the
Company's prior practice with respect to the Company's two immediately preceding
chief executive officers, the Company shall reimburse the Executive, whether
before or after retirement, expiration or prior termination of this Agreement,
for costs incurred by him for tax, financial, investment,
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<PAGE>
estate planning and other professional advice and services, including legal and
accounting services, which may be rendered or incurred at any time during the
Term, up to a maximum of $25,000 per year, as same is increased by increases in
the Consumer Price Index (as provided in Section 12 from the date hereof to the
date particular requests are made in accordance with the immediately succeeding
sentence). Such payments shall be made on the Executive's requests therefore as
such costs are incurred by him, and any of the $25,000 available for any year
which is not utilized by Executive, may be carried over and shall be available
for utilization by Executive in other years of the Term.
e) Vacation.
Executive shall be entitled to a vacation of five weeks during each year of the
Term, at times mutually agreeable to Executive and the Company. All payments and
benefits to Executive shall be paid and continue during all vacation periods.
(f) Place and Time for Services.
Executive's base of operations shall be Fairfield County, CT (the "Base Area"),
although Executive, at his election, may render his services from other
locations. However, Executive shall not be required to render his services on a
permanent or other than temporary basis outside of the Base Area. Executive
agrees, nevertheless, from time-to-time, to take such trips and travel outside
said area as may reasonably be necessary in connection with his duties.
2598A.13. 3/8/91
<PAGE>
4. Additional Payments.
Nothing in Section 3 or any other provision of this Agreement shall preclude
increases in Executive's compensation, including without limitation, increases
in Base Salary, additional benefits, bonuses, incentive awards and other
payments or benefits as the Board of Directors or appropriate committee of the
Board of Directors of the Company may approve, in its sole discretion, all of
which payments and benefits are expressly authorized.
5. Exclusivity.
(a) The Company acknowledges that Executive presently acts, performs and renders
services as chairman of the Board and chief executive officer of Century
Communications Corp., a New Jersey corporation ("Century") and as chief
executive or other officer and/or as a member of the Board of Directors of
Century's various subsidiaries and certain affiliated companies of Century.
(Such subsidiaries and affiliated companies are deemed included within the
meaning of "Century"). The Company agrees (i) that Executive may continue to
render and perform such services for Century and retain such offices,
directorships or other offices in Century and any future subsidiaries or
affiliated companies of Century and (ii) the Company shall make no claim of any
nature against Executive or his legal representatives by reason of any such
employment by or association with Century. Additionally, subject to the
provisions of Section 5(b) (with respect to Executive engaging
2598A. 14. 3/8/91
<PAGE>
in competition materially detrimental to the Company), and without the necessity
of seeking approval of the Board of Directors of the Company, Executive may
serve as a member of the board of directors, officer, partner or stockholder, or
in any other similar position or capacity or provide services for any company,
firm, person other than the Company (which shall be deemed to include all
subsidiaries and all affiliates of the Company) and other than Century,
concurrently with and after his employment under this Agreement, and further may
engage in the management of his own affairs concurrently with his employment
hereunder and thereafter. Executive shall retain for his account any and all
compensation and other benefits payable to him with respect to services rendered
to or for Century or to or for such other entities.
(b) Additional Obligations.
All payments and benefits to the Executive under this Agreement, other than
those referenced in Sections 3(b)(i) through 3(b)(iii) and Section 6, during the
period of his employment with the Company, shall be subject to the following
provisions of this Section 5(b). Subject to the provisions of Sections 5(a) and,
without limitation, excluding any employment or association with Century, if
during the Term the Executive, without the written consent of the Company, shall
knowingly engage in competition which is materially detrimental to the Company
and its subsidiaries, the Executive's rights to such payments or other benefits
in the future shall terminate, and
2598A.15. 3/8/91
<PAGE>
the Company's obligations to make such payments and provide such benefits shall
cease; provided, however, that the Executive shall not be deemed to have
knowingly engaged in such competition unless and until the Executive shall have
received written notice, on behalf of the Board of Directors of the Company,
from an independent consultant selected by those Directors who are not employees
of the Company, specifying the conduct alleged to constitute such competition,
and the Executive has thereafter continued to engage in such conduct after a
reasonable opportunity and a reasonable period, (but in no event less than 60 or
more than 120 days) after receipt of such notice to refrain from such conduct.
In the event of discontinuance by the Executive, he shall not be or be deemed to
be in violation of the provisions of this Section 5(b) and, without limitation,
Executive shall have the right to contest in appropriate forums the
determination of the independent consultant. In no event shall the Executive be
under any obligation to repay to the Company any amounts theretofore paid to
him. The provisions of this Section shall constitute the sole contractual
provisions between the Executive and the Company restricting the activities or
conduct of the Executive or governing any forfeiture or divesting of
entitlements or benefits. Any similar provisions in any Plan, or any other
Company benefit plan, or elsewhere, shall terminate and be unenforceable to the
extent inconsistent with or more burdensome to Executive than this Section,
subject to the limitations of Section 7 of this Agreement.
2598A.16. 3/8/91
<PAGE>
6. Post-Termination Provisions.
(a) Retirement Benefits.
The pension plan of the Company (the "Pension Plan") provides that an employee
cannot become a Participant in the Plan if he has attained his 60th birthday
prior to the first date for which he is to be credited with Hours of Service, as
such terms are defined in the Plan. The Pension Plan provides further that
"Normal Retirement Date" as referenced in the Pension Plan is the last day of
the calendar month during which a Participant's 65th birthday occurs. Since
Executive has heretofore attained his 60th birthday the Executive is not
eligible to participate in the Pension Plan. In lieu thereof and additionally to
provide Esecutive with a retirement commensurate with his position and
compensation, the Company will provide Executive with the following retirement
benefits:
(i) Monthly Payments
The Company shall pay the Executive an annual retirement benefit, to be paid,
except as hereinafter in this Agreement provided (including without limitation,
Sections 6(a)(iii), 9 and 10) in the form of a monthly sum, equal to two-thirds
of his "Final Compensation" as hereafter defined. Final Compensation" shall
mean, for the purposes of this subsection, the amount of remuneration payable to
the Executive for the 12 (or fewer months in the event Esecutive's employment
terminates prior to his being employed for 12
2598A. 17. 3/8/91
<PAGE>
months, in which case the amount would be annualized) most highly compensated
consecutive calendar months of the Executive's employment with the Company which
end on the last day of the calendar month immediately preceding the date on
which net monthly retirement benefits are to commence. Remuneration shall
include any and all forms of taxable income received by Executive including
benefits taxed to him whether or not directly received, plus any and all amounts
contributed by the Company or otherwise credited to his account during the
period specified under the Company's SMIDCP and 401(k) Plan, plus any and all
other awards and contributions made by the Company and other benefits received
by the Executive under any other executive compensation plan or program, without
deduction for any income or compensation accrued at any time but deferred under
the 401(k) Plan or any other deferred compensation plan, program or practice of
the Company, except that taxable income recognized by Executive by reason of the
exercise of the options to purchase 350,000 shares of the Company's Common Stock
pursuant to Section 3(b)(iv) of this Agreement or other options to acquire
shares of the Company's stock hereafter awarded to Executive, shall not be
included in computing "Final Compensation". To protect the Executive's
retirement benefit against erosion due to inflation, such net monthly retirement
benefit, as same may theretofore have been adjusted from time to time pursuant
to this subsection, shall be further increased as of the first day of each month
to take into account (A) the
2598A. 18, 3/8/91
<PAGE>
percentage increase, if any, in the Consumer Price Index for the second
preceding month over the Consumer Price Index for the third preceding month, as
well as and (B) any increases in Final Compensation resulting from the
availability of information concerning benefit or compensation plans or
programs, awards, contributions and credits, including SMIDCP awards, and from
any retroactive or other appropriate adjustments in Final Compensation. Net
monthly retirement benefits hereunder calculated as aforesaid and Executive's
rights under this Section 6(a) (and those of his spouse or legal
representatives, if applicable), shall commence as of the first day of the first
full month immediately succeeding expiration or prior termination, for any
reason, of the Term of this Agreement, and in the event termination is effected
by reason of Executive's death, then without relinquishment of any benefits
payable to Executive's spouse as set forth in subsection (ii) of this Section
6(a), such monthly payments shall be made to Executive's spouse for the period
set forth in subsection (ii).
(ii) Continuation of Payments
Such monthly retirement benefit payments shall continue until the last day of
the month in which the Executive's death occurs. Thereafter (or immediately
following termination if termination of the Term of this Agreement, is
occasioned by the death of Executive), the Company shall make monthly payments
to the Executive's surviving spouse, if any,
2598A. 19. 3/8/91
<PAGE>
equal in amount to the monthly payments which would have been made by the
Company to the Executive under this Section 6(a) had the Executive survived and
termination had not been occasioned by the death of Executive. Payment of such
surviving spouse's monthly sum shall continue until the last day of the month
during which such spouse's death occurs. If, at the time of the death of the
survivor of the Executive and his spouse, less than 120 monthly payments have
been made under this Section 6(a) after expiration or prior termination of the
Term of this Agreement, then the commuted value of the remaining monthly
payments (i.e., payments necessary to total 120 payments when combined with the
payments made after his actual retirement date), with a provision for increases
in the Consumer Price Index determined pursuant to Section 12 and 16(h) hereof,
shall be paid in a lump cash sum to the Executive's designated beneficiary or
beneficiaries or, in the absence of a valid designation or an eligible
beneficiary, to the legal representatives of the survivor.
(iii) Lump Sum or Commuted Value Payments
Notwithstanding anything in this subsection 6(a) to the contrary, the Executive
(or his surviving spouse) pursuant to an election (the "Section Six Election")
made by the Executive prior to expiration or termination of the Term of this
Agreement (or by his surviving spouse at any time after Executive's death) may
elect, effective with the dates designated in such election but in no
2598A.20. 3/8/91
<PAGE>
event prior to the expiration or prior termination of the Term of this
Agreement, to receive the commuted value of all remaining monthly payments, or
any designated portion thereof under this Section 6(a), in a lump sum cash
payment to be paid at the effective date or dates (the "Lump Sum Determination
Date") of such elections as specified by the Executive or his surviving spouse.
After any lump sum cash payment is made for a designated portion of the
aforesaid remaining monthly payments, the Company shall thereafter include in
each monthly payment hereunder to the Executive or his surviving spouse, estate
or beneficiary all monthly amounts that would have been due because of increases
in the Consumer Price Index as if said designated portion of the remaining
monthly payments had continued to be payable monthly in accordance with this
subsection 6(a). Determinations of commuted value (the "Lump Sum Calculation")
and subsequent monthly payments, if any, under this subsection 6(a) shall be
made in accordance with Section 13, hereof. The Section Six Election shall be
made in accordance with the notice provisions of Section 16(1), provided,
however, that in the instance of monies becoming due by reason of termination
pursuant to Sections 9 or 10 no such notice of election need be given.
(b) Advisory Services.
The Executive shall render the advisory services described in this Section 6(b)
as a consultant of the Company for the period commencing immediately upon the
2598A. 21. 3/8/91
<PAGE>
scheduled expiration of the Term and continuing through the fifth anniversary
of the date thereof (the "Advisory Period"). During the Advisory Period,
the Executive will provide such advisory services concerning the business,
affairs and management of the Company as may reasonably be requested by the
Board of Directors of the Company, but shall not be required to devote more
than 30 hours each month to such services, which shall be performed at a
time and place mutually convenient to both parties and which may be
performed via telephone. The Executive may engage in other full time
employment during the Advisory Period and his advisory services shall be
required only at times and places consistent with his other employment or with
his private activities; provided that during the Advisory Period the Executive
shall not engage in full time employment that is in material detrimental
competition with the Company or any of its subsidiaries or affiliates (as
provided for in Section 5(b), it being agreed that employment by Century or the
rendition of services for Century is not and shall not be deemed in competition
with the Company or any of its subsidiaries or affiliates. During the Advisory
Period, the Executive shall be entitled to receive a base payment in an amount
per annum equal to 25% of Executive's Base Salary for the twelve-month period
of the Term immediately preceding expiration ("Advisory Base Salary").
Provided, however, that in the event this Agreement is terminated by death or
Permanent Incapacity of Executive (as hereafter defined) or without "good
2598A. 22. 3/8/91
<PAGE>
cause", as hereafter defined, the Company shall pay to Executive or his legal
representatives (as provided in Sections 9 and 10) a lump sum payment equal to
the commuted value of the Advisory Base Salary for the balance of the Advisory
Term determined in accordance with Section 13 hereof.
(c) Other Matters.
During the Advisory Period and for such further period as may be mutually agreed
in the event there should then be a business relationship between the Company
and the Executive, the Company at its expense shall provide Executive with and
maintain in good repair and condition, a private office outside the Company's
offices at a location acceptable to the Executive, office furnishings, all
utilities, equipment, parking privileges, a secretary and personnel assistance
and other amenities and accoutrements of office (all of which are referred to
as "Advisory Support"), it being understood and agreed that such Advisory
Support is to be and is being provided for the Company's benefit, and provided,
however, that the Company shall continue to provide the Executive his present
office, secretary and assistants and all other services at the Company
headquarters until his new office is ready for occupancy. Such Advisory
Support shall be equivalent to those provided to the Executive currently at the
Company's headquarters, as same may be augmented during the term. The Company
shall be responsible for the hiring, employment by the Company and
compensation, including benefits,
2598A. 23. 3/8/91
<PAGE>
of the Executive's secretary and other personnel and for all required moving and
relocation expenses. In lieu of the Company providing the Executive with
Advisory Support, as aforesaid at the Company's expense, the Executive at his
option may elect to make other arrangements for himself at any time during which
the Company is obligated to provide the same and to receive from the Company for
each twelve month period durinq the remaining term of the Advisory Period, a
payment of $75,000, increased by the increase in the Consumer Price Index from
the date hereof to the first day of the applicable twelve-month period, for each
twelve-month period following such election, payable in full on the date
specified in said election, and prorated in the event that the final period
within the Advisory Period is less than twelve months.
7. Waivers: Limitations of Law.
The Company shall make such waivers, amendments to Plans or consents under
Plans, or amendments and consents in connection with other benefits provided for
herein, as may be necessary to carry out the intent of Sections 3(b) and 6.
However, in no event shall the Company or any Plan take any action which would
(A) contravene applicable law; (B) bring about the disqualification of any Plan
under the United States Internal Revenue Code of 1986, as amended (the "Code")
of any Plan presently so qualified, under the Code, or (C) eliminate any
exception from liability under Section 16(b) of the Securities Exchange Act of
1934 for any director or officer
2598A. 24. 3/8/91
<PAGE>
subject thereto. If, by reason of any matter referred to in this Section, any
action cannot be undertaken at the time at which it is expected, requested or
proposed by the Executive, it (or as much thereof as shall be permissible) shall
be undertaken at the earliest time possible thereafter, or in the case of a
request for deferred payment at the time closest to that requested, which is
permissible without contravening this Section. To the extent that benefits under
a Plan or other benefits or payments provided for herein would be lost to the
Executive permanently or for any period of time by reason of this Section, the
Company shall provide such benefits supplementarily outside such Plan or in an
alternative form.
8. Continued Availability of
Benefits after Retirement.
The payments provided under this Agreement for the Executive are not intended to
limit or eliminate any benefits to which the Executive (or, after his death, his
beneficiaries or estate) or his spouse is or may be or become entitled under any
of the Plans. After the period of his employment under this Agreement and during
the lifetime of the Executive and the lifetime of his spouse, the Executive
and/or his spouse shall be eligible to receive all benefits (or their
equivalents or counterparts) which the Executive now enjoys or for which he and
his spouse are or may become eligible (whether or not retired key employees or
their spouses would otherwise be eligible therefor) under the Plans (including
without
2598A. 25. 3/8/91
<PAGE>
limitation the Incentive Plan) of the Company and its subsidiaries. The coverage
of the Executive and his spouse under the health, hospital, medical and similar
Plans, shall continue to be maintained, until the last covered person has died,
at no less than the benefit levels applicable on the retirement date of the
Executive. No amendment to any Plan shall be carried out which shall deprive the
Executive or his spouse from continuing to participate in and receive the
aforesaid benefits and all other benefits provided for in this Agreement, unless
the Executive or his spouse is compensated by supplemental payments outside said
Plan so that he or she is in no way prejudiced by any such Plan amendment.
Additionally, after expiration of the Term and the Advisory Period or prior
termination by reason of Executive's Permanent Incapacity or without good cause
or termination by the Executive pursuant to Section 10, the life insurance
coverage and entitlement of the Executive shall be continued at the level of
coverage set forth in Section 3(b)(iii) (whether by payment of premium or as
otherwise provided for in Section 3(b)(iii)) until his death. The Executive may
convert such insurance arrangements into new or different insurance coverages or
substitute different insurance arrangements, as he shall determine from
time-to-time, and also may extend coverage to his spouse and extend the period
to include her lifetime; provided, however, that if the Executive should elect
to make any such different arrangements, the total cost on an actuarial basis of
the
2598A.26. 3/8/91
<PAGE>
insurance coverage which shall be borne or be expected to be borne by the
Company shall not exceed the cost to the Company on an actuarial basis of
maintaining (for the remainder of the Executive's life) the level of life
insurance coverage to which the Executive is entitled as described above. Such
costs on an actuarial basis shall be determined as provided in Section 13
hereof. The implementation of this paragraph shall be subject to the provisions
set forth in paragraph 7 hereof.
9. Termination by Company; Death.
(a) The death of the Executive shall work a
termination of the Term or the Advisory Period. Additionally, the Company shall
have the right to terminate the Term only under the following circumstances:
(i) Upon notice from Company to Executive in the event of an illness or other
disability which has incapacitated Executive from performing his duties for
twelve consecutive months
("Permanent Incapacity").
(ii) For "good cause" upon notice from Company. Termination by Company of
Executive's employment for "good cause" as used in this Agreement shall be
limited to willful malfeasance by Executive in the performance of his duties
under this Agreement which has a materially injurious effect on the Company's
business, or by reason of Executive's conviction of a felony
2598A. 27. 3/8/91
<PAGE>
related directly to the conduct of Executive's office (which through lapse of
time or otherwise, is not subject to appeal) or knowingly engaging in and not
thereafter refraining from competition as provided for in Section 5(b);
provided, however, that such termination shall be effected only by written
notice thereof delivered by the Company to the Executive specifying in detail
the basis for termination, and shall be effective as of the date which is 30
business days after receipt of such notice by the Executive; provided further,
however, that if (i) such termination is by reason of Executive's willful
malfeasance without proper cause to perform his particular obligations as chief
executive officer under this Agreement, and (ii) within 30 days following the
date of receipt of such notice Executive shall cease his refusal and shall use
his best efforts to perform such obligations, the termination shall not be
effective. Without limitation, Executive shall have the right to contest in
appropriate forums any termination for "good cause"
(b) If this Agreement is terminated pursuant to Section 9(a) above,
Executive's rights and Company's obligations hereunder shall forthwith
terminate except as
2598A.28. 3/8/91
<PAGE>
expressly provided in this Agreement. In the event the Company does not exercise
its right of termination under Section 9(a)(i) or 9(a)(ii), all of the payments
and benefits due or to become due to Executive, and/or his spouse and/or his
designated beneficiaries or legal representatives shall continue to be made and
accrue as if and to the same extent that Executive was fully performing his
obligations hereunder.
(c) If this Agreement is terminated by reason of death of the Executive or
pursuant to Section 9(a)(i) hereof, Executive or his designated beneficiary or
beneficiaries or legal representatives, as the case may be, shall be entitled to
receive the following:
A. The present commuted value determined pursuant to Section 13, of the
aggregate of (i) 100% of Executive's Base Salary accrued to date of termination
and for the balance of the Term, without obligation of the Executive to provide
any of the services provided for in Section 1 for said balance of the Term,
except that if such termination occurs during the last three years of the Term
the remaining balance of the Term shall be deemed to be increased by one year)
without obligation of the Executive to provide any services, (ii) 100% of
Executive's Advisory Base Salary for the full five years of the Advisory Period
without obligation of the Executive to provide any of the services set forth in
Section 6(b);
2598A. 29. 3/8/91
<PAGE>
(iii) 100% of the amount in Executive's account in the SMIDCP together with
such additional amount that would be in such Plan for the benefit of
Executive had this Agreement not been terminated by the Company and
Executive rendered his services during the balance of 9 the Term; (iv) 100%
of all monies in Executive's account in all other Plans, and (v) a bonus for
each year or the fraction thereof for the remainder of the Term based on the
average amount of the bonuses paid immediately preceding death.
B. In the instance of termination by reason of death, the proceeds of the
policy or policies of life insurance referenced in Section 3(b)(iii),
and in the instance of termination under Section 9(a)(i), a fully paid up
policy of life insurance on Executive's life in the principal amount set
forth in Section 3(b)(iii) in the event Executive was insurable, and if not
insurable, the Company shall continue to be obligated to make the Insurance
Payment provided for in Section 3(b)(iii).
C. Continued participation for Executive and his spouse during their
respective lifetimes in all health, medical and hospital plans of the
Company made available for senior employees, with the Company paying all
premiums and charges in connection therewith; and
2598A. 30. 3/8/91
<PAGE>
D. In the instance of termination by reason of death, the present commuted
value, in one lump sum of the monthly payments provided for in Section 6(a) and
in the instance of termination under Section 9(a)(i) continued payment of the
retirement benefit (in monthly payments or in a lump sum) as provided for in
Section 6(a).
(d) If this Agreement is terminated pursuant to Section 9(a)(ii) hereof,
Executive shall be entitled to receive the following:
A. The present commuted value determined pursuant to Section 13, as of the date
of termination of (i) 100% of the amount in Executive's account in the SMIDCP,
(ii) 100% of all monies in Executive's account in all other Plans, and (iii)
Base Salary for services rendered through the date of termination; and
B. Except in the instance of Executive's conviction of a felony related directly
to the conduct of his office, which through lapse of time or otherwise, is not
subject to appeal, the present commuted value, in one lump sum, of the monthly
payments provided for in Section 6(a).
C. A fully paid-up policy of life insurance on Executive's life in the principal
amount to set forth in Section 3(b)(iii) in the event Executive was insurable,
and if not insurable, the Company shall
2598A.31. 3/8/91
<PAGE>
continue and shall be obligated to make the Insurance Payments, as provided for
in Section 3(b)(iii).
(e) Without limitation on his rights and remedies, Executive shall have the
right to contest any termination by the Company pursuant to Section 9(a)(i) or
9;(a)(ii) by appropriate legal action, before any court and to obtain damages
from the Company (including without limitation, legal fees and expenses) if and
to the extent that such termination is determined by final court order to have
been wrongful.
10. Termination by Executive and Wrongful Termination by the Company.
(a) The Executive shall have the right, exercisable by notice to the Company, to
terminate the Term, the Advisory Period and this Agreement (i) effective 30 days
after the giving of such notice, if, at any time during the Term or the Advisory
Period, the Company shall be in material breach of any of its obligations
hereunder, provided that the Term or the Advisory Period, or this Agreement,
shall not so terminate if within such thirty-day period the Company shall have
cured all such material breaches of its obligations hereunder; or (ii) after
this Agreement has been in effect for 24 or more months, at any time, in
Executive's option and discretion, effective 60 days after the giving of notice
of termination; or (iii) effective 30 days after the giving of such notice in
the instance of an illness or disabiltiy to
2598A. 32. 3/8/91
<PAGE>
Executive which is not a Permanent Incapacity under Section 9(a)(i), and the
Executive's physician(s) or other medical and/or mental health
practitioner(s) advise or suggest that the continuance of
Executive in his employment with the Company would or might have an adverse
effect on Executive's physical or mental health. The parties acknowledge and
agree that a material breach for purposes of this Section 10 shall include, but
not be limited to (i) failure of Executive to be elected or retained as
Chairman of the Board, Chief Executive Officer and a director of the Company,
or the failure of the Company to cause Executive to so serve in such positions,
(ii) a reduction (other than an incidental or immaterial reduction) in the
Executive's authority, functions, duties or responsibilities provided in
Section 1 (whether or not accompanied by a change in title) which has not been
fully corrected within said 30-day period or (iii) the Company's requirement
that (or causing) all persons and personnel to report directly or indirectly to
other than Executive or the Company's failure to cause Executive be the senior
officer of the Company, or (iv) a "Change in Control" (as hereafter defined) of
the Company occurs. A "Change in Control" of the Company shall be deemed to
occur when (A) any person or group of affiliated or related persons (other than
a group of which Executive or an entity controlled by Executive is a
participant and other than an employee benefit plan of the Company) acquires,
directly or indirectly, voting securities or assets
2598A.33. 3/8/91
<PAGE>
of the Company if, immediately after giving effect to such acquisition, such
person or group of affiliated or related persons either (i) beneficially owns 9%
or more of the total voting power of all of the Company's voting securities
outstanding at the time of such acquisition, or 9% or more than the fair market
value of the Company's issued and outstanding stock, or (ii) within the
preceding 12-month period acquired the voting power referenced in (i) above, or
(iii) within the preceding 12-month period acquired 20% or more of the assets of
the Company, or (iv) otherwise effectively controls the operations of the
Company, whether by control of its Board of Directors, by contract, or
otherwise, or (B) a majority of the members of the Board of Directors of the
Company is replaced during the preceding 12-month period by directors whose
appointment or election was not endorsed by the prior Board.
(b) In the event of termination by the Executive in accordance with the
foregoing procedures or in the event of the termination of this Agreement or the
term of employment by the Company in breach of any of its obligations under this
Agreement, the following provisions shall apply:
(i) The Executive shall have no further obligations or liabilities to the
Company whatsoever which shall survive such termination.
(ii) In the event of termination occasioned by breach by the Company, then on
the date of such termination, the Company shall pay as damages in a lump sum,
the sum of
2598A.34. 3/8/91
<PAGE>
$1,000,000 plus the monies set forth and enumerated in Section 9(c)A, and there
shall be paid over to Executive and additionally he shall be entitled to
receive the benefits set forth in Sections 9(c) B and C and D. In this
connection, the payment and benefit pursuant to Section 9(c)B shall be the
same as the payment and benefit provided in the instance of termination
under 9(a)(i), and the payment or benefit pursuant to Section 9(c)D shall be
the same as the payment and benefit in the instance of death.
(iii) In the event of termination by Executive at his option pursuant to Section
10(a)(ii) after this Agreement has been in effect for twenty-four months, then
on the date of termination, the Company shall pay to Executive and Executive
shall be entitled to receive the payments and benefits provided for in Section
9(d), disregarding the first clause of Section 9(d)B, and provided that if such
termination becomes effective during any of the periods of time set forth below,
the commuted value of the monthly payments provided for in Section 6(a) shall be
reduced by the following corresponding percentages:
Period of Termination Reduction Percentage
- --------------------- --------------------
Prior to June 30, 1993 50%
July 1, 1993 to June 30, 1994 33-1/3%
July 1, 1994 to June 30, 1995 25%
July 1, 1994 to June 30, 1995 12-1/2%
(iv) In the event of termination by the
2598A.35. 3/8/91
<PAGE>
Executive pursuant to Section 10(a)(iii), then on the date of termination, the
Company shall pay to Executive and Executive shall be entitled to receive the
payments and benefits provided for in Section 9(c) in the instance of
termination under Section 9(a)(i).
(c) Any termination under Section 10(a) shall not affect any vested rights
which the Executive may have at the effective date of such termination pursuant
to any insurance or other death benefit plans or arrangements of the Company or
under any stock option, stock appreciation right, bonus unit, management
incentive or other plan of the Company maintained for its senior executives not
referenced in Sections 9(c) A, B, C and D and Section 10(b), all of which rights
shall remain in full force and effect (and any period shall not be deemed
shortened as a result of the Executive's termination of employment,
notwithstanding the provisions of any related plan, agreement or certificate
issued thereunder), nor shall such termination affect the obligations of the
Company to continue to provide the Executive with the other benefits, support
services, Advisory Support, and other entitlements required to be provided to
the Executive under this Agreement.
(d) Mitiqation. In the event of the termination of this Agreement by the
Executive pursuant to Section 10 or by reason of breach by the Company of any
of its obligations hereunder, or in the event of the termination of this
Agreement
2598A.36. 3/8/91
<PAGE>
by the Company pursuant to Section 9(a)(i) or other than pursuant to Section
9(a)(ii), the Executive shall not be required to mitigate his damages hereunder
and payments and benefits to be made in event of termination under Section 10 or
Section 9(a)(i) or by reason of breach by the Company of any of its obligations
hereunder or other than by reason of Section 9(a)(ii), shall not be limited or
reduced by any amount Executive might earn or be able to earn from other
employment or ventures.
(e) The parties believe that the above payments or benefits pursuant to Section
10(b)(ii) do not constitute "Excess Parachute Payments" under Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"). Notwithstanding such
belief, if any such payment or benefit under Section 10(b)(ii) is determined by
the United States Internal Revenue Service to be an "Excess Parachute Payment"
the Company shall pay Executive additional amounts (the "Tax Payment") on a
fully reimbursed after-tax basis equal to the sum of excise tax under Section
4999 of the Code, income taxes under Subtitle A of the Code and all other taxes
under applicable state law on such Excess Parachute Payments.
(f) Remedies. The Company recognizes and agrees that because of Executive's
special talents, stature and opportunities that the provisions of this Agreement
regarding further payments of Base Salary, Advisory Base Salary and the other
payments, the benefits as provided for in
2598A.37. 3/8/91
<PAGE>
Section 10(b)(ii), constitute fair and reasonable provisions for the
consequences of such termination and do not constitute a penalty.
11. Indemnity, Directors' and Officers' Insurance.
(a) The Company agrees to and confirms its obligations, among others, to
indemnify the Executive as an officer, director, employee and agent and its
related obligation to advance funds for expenses to the Executive as contained
in the Company's certificate of incorporation, by-laws and any other instruments
or provided for by law or otherwise. Such obligations shall be in scope the
greatest of (i) the obligations existing as of the date hereof, (ii) the
obligations as they may be amended or otherwise revised in the future, or (iii)
the maximum protection available for officers and/or directors under applicable
law. The Company agrees that it will use its best efforts to the end that the
By-laws and Certificate of Incorporation of the Company shall not be amended to
reduce any indemnity protection presently available to officers and/or
directors.
(b) The Company presently maintains Directors and Officers Insurance in limits
of $15,000,000. The Company agrees to [use its best efforts to] maintain
Directors' and Officers' Insurance (at a minimum in such limit) covering the
Company's obligation, among other things, to indemnify the Executive for loss,
liability and expense resulting from
2598A.38. 3/8/91
<PAGE>
litigation relating to his activities as an officer or director of the Company
and insuring the Executive against such loss, liability and expense, with
coverage at least as high as the insurance now maintained by the Company, and,
following termination of employment under this Agreement, to maintain equivalent
coverage for the executive, on an "occurrence" basis (or as a named former
officer and director on a "claims made" basis) or otherwise for his activities
during the Advisory Period and additionally while he is in the service of the
Company.
12. Consumer Price Index.
(a) Whenever used herein the words "Consumer Price Index" shall mean the New
York-Northeastern New Jersey Area Consumer Price Index for Urban Wage Earners
and Clerical Workers (or if publication of that index is terminated, any
substantially equivalent successor thereto), as published by the Bureau of Labor
Statistics of the United States Department of Labor.
(b) If at any time that a computation based on an increase in the Consumer Price
Index for any specified period is required under the terms of this Agreement and
the appropriate percentage increase in the Consumer Price Index is not yet
available, the percentage increase will be assumed to have been the same as the
increase for the most recent period of the specified duration for which
information is available. If at any time a computation is required to be made
under this
2598A. 39. 3/8/91
<PAGE>
Agreement based on the Consumer Price Index as of any date or month, the most
recent Consumer Price Index which is available on that date or at the end of
such month shall be used.
(c) In comparing Consumer Price Indexes the same lag time or procedure to
reflect a delay in the availability of information will be used for each. In the
case of any adjustment or corrections in the Consumer Price Index appropriate
payments or credits between the Company and the Executive shall be reflected in
the first monthly payment after current or corrected information becomes
available.
13. Determination of Benefits.
Whenever under this Agreement it is necessary to determine actuarially
equivalent continuing benefits, or whether one benefit, cost or payment is less
than, equal to or larger than another (whether or not such benefit, cost or
payment is provided under this Agreement), or to make any determination or
calculation specifically designated in this Agreement to be made in accordance
with this paragraph 13, or the present or commuted value of payment or payments
to be made in the future or over a period of time, or whenever either party
hereto requests that any calculation relevant to this Agreement be made or a
procedure for a calculation be established or the accuracy of a calculation be
checked, such determination, calculation or procedure shall be made by the
Company's independent consulting actuary, The Wyatt Company, or by another
independent actuary acceptable to the Executive and
2598A. 40. 3/8/91
<PAGE>
the Company, using when such information is needed the mortality tables then
currently in use for purposes of the Company's Pension Plan (assuming 100% joint
and survivor benefits), and the interest rate specified in the Company's Pension
Plan in effect at December 31, 1989 for use in determining actuarial equivalents
for employees of more than 20 years of service who were participants in the
Pension Plan on December 31, 1983.
14. Merqer, Consolidation, or Sale of Assets or Stock.
Subject to Executive's right to terminate this Agreement pursuant to Section 10
by reason of Change in Control of the Company occasioned by any
consolidation, merger or transfer hereafter referenced in this Section,
which right is expressly reserved and retained by Executive, nothing in this
Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets or capital
stock to, another corporation or business organization which assumes this
Agreement and all obligations and undertakings of the Company to the
Executive under this Agreement or any corporate instrument, by-law,
certificate of incorporation, benefit plan, program or practice, other
corporate undertaking, agreement or law. Upon such a consolidation, merger or
transfer of assets or stock and assumption, the term "Company" shall refer to
such other corporation or business organization, and this Agreement shall
continue in full force and effect, and such other corporation
2598A.41. 3/8/91
<PAGE>
or business organization shall, ipso facto, assume this Agreement and all other
obligations of the Company contemplated by this Agreement. No such
consolidation, merger or transfer shall relieve the Company from any of the
Company's obligations under this Agreement without the written consent of the
Executive or his surviving spouse.
15. Additional Option To Acquire Shares
(a) In the event of a threatened or actual Change in Control, Executive shall
have the right and option, exercisable by Executive in Executive's discretion,
from time to time during the period set forth below, by notice to the Company
(the "Option Notice") to acquire from the Company up to 2,000,000 shares in the
aggregate, of the Series A Common Stock or Series B Common Stock, or a
combination of Series A and Series B Common Stock, as the Executive may
determine, ("Common Stock") of the Company (adjusted as set forth in Subsection
(b)) at a price per share, to be paid by Executive, equal to the Closing Price
(as hereafter defined) of said stock on the date of the giving of the Option
Notice, or if such day is a Saturday, Sunday or Holiday, on the immediately
preceding business day on which securities are generally traded (the "Applicable
Date"). The Option Notice shall be given on or before the latest of (i) the
expiration date of the Term as set forth in Section 2, (ii) the expiration date
of any renewal or extension of this Agreement or any other employment agreement
between Executive and the Company (the "New Agreement") and
2598A. 42. 3/8/91
<PAGE>
(iii) six months following the termination of Executive's Employment with the
Company subsequent to the Term or the term of any New Agreement. The Closing
Price shall be the last such reported sales price, regular way, on the
Applicable Date, or, in case no such reported sale takes place on such
particular day, the average of the closing bid and asked prices, regular way,
for such particular day, in each case on the principal national securities
exchange or in the NASDAQ-National Market System (the "Securities Exchange") on
which the shares of Series A Common Stock and/or Series B Common Stock, as the
case may be, are listed or admitted to trading or, if not listed or admitted to
trading, the average of the closing bid and asked prices of the Common Stock in
the over-the-counter market as reported by NASDAQ or any comparable system, as
adjusted pursuant to Subsection (b). Payment shall be made by the Executive
within ten business days following the giving of the Option Notice. Without
limitation, a threatened change in control shall be deemed to have occurred when
any person or group of persons acquires such ownership of securities of the
Company that such person or group files or is required to file a Form 13-D or
otherwise files or is required to make a filing pursuant to Regulations 13D-G
under the Securities and Exchange Act of 1934, as amended.
(b) The number of shares subject to the option set forth in subsection (a)
above, shall be adjusted to reflect, after July 1, 1990 any (i) declaration or
payment of
2598A. 43. 3/8/91
<PAGE>
dividends in the form of Series A Stock, Series B Common Stock or other common
stock of the Company, (ii) stock splits, (iii) subdivisions or combinations or
reclassifications of outstanding Series A or Series B Common Stock or (d) the
issuance to holders of Series A or Series B Common Stock of options, warrants or
rights to acquire additional shares of such respective series and any other
distribution made by its Company to holders of Series A Stock or Series B Common
Stock, as the case may be, and the Option Price shall be adjusted to reflect all
of the foregoing.
16. MISCELLANEOUS
(a) Decisions by Company
Except as otherwise expressly provided.in this Agreement, any decision,
designation, consent or other action by the Company relating to this Agreement,
its operation or its termination, shall be made by the Board of Directors, or at
the direction of the Board of Directors, when so requested by the Executive.
(b) Entire Aqreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties and may not be modified except by an agreement signed
by the Executive (and/or where applicable his legal representatives and his
spouse) and the Company.
(c) Assiqnability. This Agreement, and the
2598A.44. 3/8/91
<PAGE>
Executive's rights and obligations hereunder, may not be assigned or delegated
by the Executive; provided, however, that nothing in this subsection (d) shall
preclude (i) the Executive from designating a beneficiary to receive any benefit
payable on his death, and (ii) the legal representatives of the estate of the
Executive or his spouse from assigning any rights hereunder to the person or
persons entitled thereto under his or her will or, in case of intestacy, to the
person or persons entitled thereto under the laws of the intestacy. Except as
expressly provided for in Section 14 and subject to the Executive's rights to
terminate this Agreement under Section 10 by reason of any change in control of
the Company, this Agreement and the Company's rights and obligations hereunder,
may not be assigned or delegated by the Company.
(d) No Attachment
Except as otherwise required by law, no right to receive payments under this
Agreement shall be subject to encumbrance, charge, execution, attachment, levy
or similar process or assignment by operation of law, and any attempt
voluntary/or involuntary, to effect any such action shall be null, void and of
no effect.
(e) Bindinq Aqreement
This Agreement shall be binding upon and inure of the benefit of the Executive
and the Company and their respective permitted successors and permitted assigns.
(f) No Waiver
No term or condition of this Agreement shall
2598A.45. 3/8/91
<PAGE>
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
(g) Expenses and Leqal Fees
The Company shall pay all legal fees (which shall include without limitation,
fees of tax advisors and tax counsel and associated expenses and disbursements)
incurred by Executive in the negotiation and execution of this Agreement.
Additionally, the Company shall pay all legal fees' of litigation, and other
expenses incurred by the Executive, his spouse, or the estate, legal
representative or other beneficiary of either ("Claimant") (i) as a result of
(A) the Company's refusal to make payments or failure to make payments when due
to which the Claimant or any benefit plan, fund or agent is or shall become
entitled under this Agreement, or otherwise, (B) the refusal or failure of the
Company to make provision for or acknowledge any employee benefit to which the
Claimant is or shall become entitled as provided for by this Agreement or
otherwise, or (C) the refusal or failure or by any benefit plan, fund or agent
established for the benefit of the
2598A.46. 3/8/91
<PAGE>
Company's employees to make any such payments when due or (ii) as a result of
the Company's contesting the validity, enforceability or interpretation of this
Agreement or any portion thereof.
(h) Riqht to Accelerate
Without limitation of any rights of Executive to otherwise cause acceleration
of any benefits or monies due or to become due to Executive, his spouse or their
respective legal representatives, if the Company or any of the benefit plans or
funds referenced herein shall fail to make, when due, any payment referred to in
this Agreement or shall refuse to make any such payment, or shall fail or refuse
to make provision for, or to acknowledge, any employee or other benefit to which
the Claimant is entitled, the Claimant may, at his, her or its option,
accelerate and declare due, payable and performable all such payments,
provisions or entitlements. If at any time the Claimant has the right to
accelerate payments under this Section, same shall be determined in accordance
with the provisions of Section 13 but incorporating, however, in said lump sum
calculation the average annual increase in the Consumer Price Index for the most
recent 36 months preceding the date on which said accelerated payment is to be
made. The Claimant may, but shall not be required to, bring one or more legal
actions to enforce payment, or other appropriate remedy, of any and all amounts
to which the Claimant has then become, or shall at any time in the future become
entitled, whether or
2598A.47. 3/8/91
<PAGE>
not then due, payable or performable.
(i) Severability
If for any reason any provision of this Agreement shall be held invalid, such
invalidity shall not affect any other provision of this Agreement not held
invalid, and all other such provisions shall to the full extent consistent with
law continue in full force and effect so as to carry out the intent of this
Agreement. If any such provision shall be held invalid in part, such invalidity
shall in no way affect the rest of such provision not held invalid, and the rest
of such provision, together with all other provisions of this Agreement, shall
likewise to the full extent consistent with law continue in full force and
effect so as to carry out the intent of this Agreement. In the event of any such
invalidity, the parties shall both endeavor and negotiate in, good faith, to
agree upon substitute provisions to effectuate the interest of the provisions
held to be invalid.
(j) Headinqs
The headings of Section are included solely for convenience of reference and
shall not control the meaning or interpretation of any of the provisions of
this Agreement.
(k) Governinq Law
The Company being a Delaware corporation, the validity, interpretation,
performance and enforcement of this Agreement shall be governed by the internal
laws of the
2598A.48. 3/8/91
<PAGE>
State of Delaware app]icable to agreements made and fully to be performed
therein, without any reference to any rules of conflicts of laws.
(1) Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given when delivered personally or (ii) when transmitted by
facsimile transmission to the telecopy number set forth below (during normal
business hours of the recipient or the immediate succeeding business day) or
when mailed, on the second business day immediately succeeding the mailing by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice; provided that notices of changes of address shall
be effective only upon receipt thereof):
(a) If to the Company at:
High Ridge Park
Stamford, CT 06907
Attn: Board of Directors
Telecopy Number: 203-329-4627
(with copy to the same address or telecopy number but Attention: Legal
Department.
(c) If to Executive at:
160 Lantern Ridge Road
New Canaan, CT 06240
With copy to David Z. Rosensweig, Esq.,
11 East 44th Street, New York, NY 10017.
IN WITNESS WHEREOF, the parties hereto have signed
2598A.49. 3/8/91
their names, all as of the date and year first above written.
CITIZENS UTILITIES COMPANY
By: /s/ Daryl A. Ferguson
-----------------------
Its /s/ President
Attest:
/s/ Charles J. Weiss
------------------
Secretary of
Citizens Utilities Company
/s/ Leonard Tow
-----------
APPROVED:
- ---------
/s/ Robert D. Siff
---------------
/s/ Aaron Fleischman
-----------------
/s/ Norman Botwinik
----------------
Members of the Compensation Committee of the Board of Directors of Citizens
Utilities Company.
2598A.50 3/8/91
<PAGE>
Amendment to Employment Agreement approved on September 28, 1995 by Court of
Chancery, New Castle County, Delaware, Consolidated Civil Action No. 12992.
<PAGE>
Amended Version of Section 6(a)
[Note: The following clause appears on page 17 of the original
employment agreement.]
6. Post-Termination Provisions
---------------------------
(a) Retirement Benefits
-------------------
The pension plan of the Company (the "Pension Plan")
provides that an employee cannot become a Participant in the Plan if he has
attained his 60th birthday prior to the first date for which he is to be
credited with Hours of Service, as such terms are defined in the Plan. The
Pension plan provides further that "Normal Retirement Date" as referenced
in the Pension Plan is the last day of the calendar month during which a
Participant's 65th birthday occurs. Since Executive has heretofore attained
his 60th birthday the Executive is not eligible to participate in the Pension
Plan. In lieu thereof and additionally to provide Executive with a retirement
commensurate with his position and compensation, the Company will in lieu of
provisions previously contained in this Section 6(a) of the employment
agreement maintain at its cost, Split-Dollar Policies, and the Executive and his
spouse will accept the Split-Dollar Policies, which have been procured by the
Company in full satisfaction of their rights under this Section 6(a) of the
employment agreement. In light of the substitution of Split-Dollar Policies
for the retirement benefits formerly called for in this Section 6(a) of the
original Employment Agreement, the references in the original Employment
Agreement to retirement benefits as provided in Sections 6(a) are of no effect.
In the event that the Executive incurs any federal or state income tax or gift
tax liability as a result of the implementation of the Split-Dollar Policies,
the Company will indemnify the Executive with respect thereto.
<PAGE>
Amended Version of Section 10(a)
[Note: The following clause appears on page 32 of the original
employment agreement.]
10. Termination by Executive and Wrongful Termination
by the Company.
-------------------------------------------------
(a) The Executive shall have the right, exercisable by notice
to the Company, to terminate the Term, the Advisory Period and this Agreement
(i) effective 30 days after the giving of such notice, if, at any time during
the Term or the Advisory Period, the Company shall be in material breach
of any of its obligations hereunder, provided that the Term or the Advisory
Period, or this Agreement, shall not so terminate if within such thirty-day
period the Company shall have cured all such material breaches of its
obligations hereunder; or (ii) after this Agreement has been in effect of 24
or more months, at any time, in Executive's option and discretion, effective
60 days after the giving of notice of termination; or (iii) effective 30 days
after the giving of such notice in the instance of an illness or disability to
Executive which is not a Permanent Incapacity under Section 9(a)(i), and the
Executive's physician(s) or other medical and/or mental health practitioner(s)
advise or suggest that the continuance of Executive in his employment with the
Company would or might have an adverse effect on Executive's physical or mental
health. The parties acknowledge and agree that a material breach for purposes
of this Section 10
<PAGE>
Amended Version of Section 15(a)
[Note: The following clause appears on page 42 of the original employment
agreement]
15. Additional Option to Acquire Shares
-----------------------------------
(a) In the event of a threatened or actual Change in Control,
Executive shall have the right and option, exercisable by Executive in
Executive's discretion, from time to time during the period set forth below, by
notice to the Company (the "Option Notice") to acquire from the Company up to
2,000,000 shares in the aggregate, of the Series A Common Stock or Series B
Common Stock, or a combination of Series A and Series B Common Stock, as the
Executive may determine, ("Common Stock") of the Company (adjusted as set forth
in Subsection (b)) at a price per share to be paid by Executive, equal to the
Closing Price (as hereafter defined) of said stock on the date of the giving
of the Option Notice, or if such day is a Saturday, Sunday or Holiday, on the
immediately preceding business day on which securities are generally traded
(the "Applicable Date"). The Option Notice shall be given on or before the
latest of (i) the expiration date of the Term as set forth in Section 2, (ii)
the expiration date of any renewal or extension of this Agreement or any other
employment agreement between Executive and the Company (the "New Agreement") and
<PAGE>
Amended Version of Section 15(a)
[Note: The following clause appears on Page 42. of the original employment
agreement.]
(iii) six months following the termination of Executive's Employment with the
Company subsequent to the Term or the term of any New Agreement. The Closing
Price shall be the last such reported sales price, regular way, on the
Applicable Date, or, in case no such reported sale takes place on such
particular day, the average of the closing bid and asked price, regular way,
for such particular day, in each case on the principal national securities
exchange or in the NASDAQ-National Market System (the "Securities Exchange")
on which the shares of Series A Common Stock and/or Series B Common Stock, as
the case may be, are listed or admitted to trading or, if not listed or
admitted to trading, the average of the closing bid and asked prices of the
Common Stock in the over-the-counter market as reported by NASDAQ or any
comparable system, as adjusted pursuant to Subsection (b). Payment shall
be made by the Executive within ten business days following the giving of the
Option Notice. A "Change in Control" of the Company shall be deemed to occur
when (A) any person or group of affiliated or related persons (other than a
group of which Executive or an entity controlled by Executive is a participant
and other than an employee benefit plan of the Company) acquires, directly or
indirectly, voting securities or assets of the Company if, immediately after
giving effect to such acquisition, such person or group of affiliated or related
persons either (i) beneficially owns 9% or more of the total voting power of
all of the Company's voting securities outstanding at the time of such
acquisition, or 9% or more than the fair market value of the Company's issued
and outstanding stock, or (ii) within the preceding 12-month period acquired
the voting power referenced in (i) above, or (iii) within the preceding
12-month period acquired 20% or more of the assets of the Company, or (iv)
otherwise effectively controls the operations of the Company whether by
control of its Board of Directors, by contract, or otherwise, or (B) a majority
of the members of the Board of Directors of the Company is replaced during the
preceding 12-month period by directors whose appointment or election was not
endorsed by the prior Board. Without limitation, a threatened change in control
shall be deemed to have occurred when any person or group of persons acquires
such ownership of securities of the Company that such person or group files or
is required to file a Form 13-D or otherwise files or is required to make a
filing pursuant to Regulations 13D-G under the Securities and Exchange Act of
1934, as amended.
<PAGE>
shall include, but not be limited to (i) failure of the Executive to be elected
or retained as Cairman of the Board and Chief Executive Officer of the Company,
or the failure of the Company to cause Executive to serve in such position, (ii)
a reduction (other than an incidental or immaterial reduction) in the
Executive's authority, functions, duties or responsibilities provided in
Section 1 (whether or not accompanied by a change in title) which has not been
fully corrected within said 30-day period or (iii) the Company's requirement
that (or causing) all persons and personnel to report directly or indirectly to
other than Executive or the Company's failure to cause Executive be the senior
officer of the Company. In light of the elimination of the agreement that a
Change of Control shall be a material breach of this Section 10, the references
in Sections 14 and 16 of the original Employment Agreement to the Executive's
right to terminate this Agreement pursuant to Section 10 by reason of a Change
in Control are of no effect.
<PAGE>
Amended Version of Section 16(h)
[Note: The following appears on page 47. of the original employment agreement.]
(h) Right to Accelerate
-------------------
Without limitation of any rights of Executive to otherwise cause
acceleration of any benefits or monies due or to become due to Exeuctive,
his spouse or their respective legal representatives, if the Company or any of
the benefit plans or funds referenced herein shall fail to make, when due, any
payment referred to in this Agreement or shall refuse to make any such payment,
or shall fail or refuse to make provision for any employee or other benefit to
which Claimant, the Claimant may, at his, her or its option, accelerate and
declare due, payable and performable all such payments, provisions or
entitlements, provided, however, that such acceleration shall be effected only
by written notice thereof delivered by the Claimant to the Company specifying
in detail the basis for acceleration, and shall be effective as of the date
which is 30 business days after the receipt of such notice by the Company
provided further, however, that if within 30 business days following the date
of receipt of such notice, the Company shall make, when due, the payment in
question or shall agree to make any such payment when due, or shall make
provision therefor, the acceleration shall not be effective. If at any time the
Claimant has the right to accelerate payments under this Section, same shall
be
<PAGE>
determined in accordance with the provisions of Section 13 but incorporating,
however, in said lump sum calculation the average annual increase in the
Consumer Price Index for the most recent 36 months preceding the date on
which said accelerated payment is to be made. The Claimant may, but shall not
be required to, bring one or more legal actions to enforce payment, or other
appropriate remedy, of any and all amounts to which the Claimant has then
become, or shall at any time in the future become entitled, whether or not then
due, payable or performable.
<PAGE>
EXHIBIT NO. 21
21. SUBSIDIARIES (all wholly-owned, except where otherwise indicated)
State of
Name Incorporation
AAlert Paging Company Delaware
Subsidiaries of ALERT Paging Company:
AAlert Paging Company of Sacramento California
AAlert Paging Company of San Diego California
AAlert Paging Company of San Francisco California
Citizens Cable Company Delaware
Citizens Communications Services, Inc. California
Citizens Directory Services Company L.L.C. Delaware*
Citizens International Management Services Company Delaware
Citizens Midwestern Company Illinois
Citizens Mohave Cellular Company Delaware
Citizens Mountain State Telephone Company West Virginia
Citizens Public Works Service Company Delaware
Citizens Resources Company Delaware
Citizens Telecom Services Company Delaware
Citizens Telecommunications Company California
FCS, Inc. New York
Citizens Telecommunications Company of California, Inc. California
Citizens Telecommunications Company of Idaho Delaware
Citizens Telecommunications Company of Montana Delaware
Citizens Telecommunications Company of New York, Inc. New York
Citizens Telecommunications Company of Oregon Delaware
Citizens Telecommunications Company of Tennessee L.L.C. Delaware*
Citizens Telecommunications Company of the Golden State Delaware
Citizens Telecommunications Company of the Navajo
Nation, L.L.C. Delaware*
Citizens Telecommunications Company of the Volunteer
State L.L.C. Delaware*
Citizens Telecommunications Company of the White
Mountains L.L.C. Delaware*
Citizens Telecommunications of Tuolumne California
Citizens Telecommunications Company of Utah Delaware
Citizens Telecommunications Company of West Virginia Delaware
Citizens Utilities Company of California California
Citizens Utilities Company of Illinois Illinois
Citizens Utilities Company of Ohio Ohio
Citizens Utilities Company of Pennsylvania Pennsylvania
Citizens Utilities Rural Company, Inc. Delaware
Citizens Utilities Water Company of Pennsylvania Pennsylvania
Citizens Water Resources Company Illinois
CU CapitalCorp Delaware
Subsidiary of CU CapitalCorp:
Electric Lightwave, Inc. Delaware
Electric Energy Export Corp. Arizona
Flowing Wells, Inc. Indiana
Havasu Water Company, Inc. Arizona
LGS Concord Corporation Minnesota
LGS Natural Gas Company Louisiana
LGS Securities, Inc. Louisiana
Southwestern Capital Corporation Delaware
Southwestern Investments, Inc. Nevada
Sun City Sewer Company Arizona
Sun City Water Company Arizona
Sun City West Utilities Company Arizona
Tubac Valley Water Company, Inc. Arizona
Utilities Advances Corporation New York
NCC Systems, Inc. Texas
Navajo Communications Company, Inc. New Mexico
CU Wireless Management L.L.C. Delaware*
* Formed in the state of Delaware.
EXHIBIT No. 23
Independent Auditor's Consent
The Board of Directors
Citizens Utilities Company:
We consent to the incorporation by reference in the Registration Statement
(No. 33-37602) on Form S-8, in the Registration Statement (No. 33-39566) on
Form S-8, in the Registration Statement (No. 33-39455) on Form S-8, in
the Registration Statement (No. 33-41682) on Form S-8, in the Registration
Statement (No. 33-42972) on Form S-8, in the Registration Statement
(No. 33-48683) on Form S-8, in the Registration Statement (No. 33-54376) on
Form S-8, in the Registration Statement (No. 33-44069) on Form S-3, in the
Registration Statement (No. 33-44068) on Form S-3, in the Registration
Statement (No. 33-51529) on Form S-3 and in the Registration Statement
(No. 33-55075) on Form S-3, in the Registration Statement (No. 33-52873) on
Form S-3 and in the Registration Statement (No. 33-63615) on Form S-3 of
Citizens Utilities Company of our report dated March 1, 1996, relating to the
consolidated balance sheets of Citizens Utilities Company and subsidiaries as
of December 31, 1995, 1994, and 1993 and the related consolidated statements
of income, shareholders' equity, and cash flows for the years then ended,
which report appears in the December 31, 1995 annual report on Form 10-K of
Citizens Utilities Company.
KPMG PEAT MARWICK LLP
New York, New York
March 1, 1996
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof. February 6, 1996
/s/ Robert A. Stanger
---------------------
Robert A. Stanger
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Citizens
Utilities Company constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1994 for Citizens Utilities Company, and any and all
amendments to said Form 10-K, and to file the same, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
February 6, 1996 /s/ Norman I. Botwinik
-------------------------
Norman I. Botwinik
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Citizens
Utilities Company constitutes and appoints Robert J. DeSantis and Livingston E.
Ross, jointly and severally, for him in any and all capacities to sign on Form
10-K for the fiscal year 1994 for Citizens Utilities Company, and any and all
amendments to said Form 10-K, and to file the same, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
February 6, 1996 /s/ Aaron I. Fleishman
------------------------
Aaron I. Fleischman
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Stanley Harfenist
---------------------
Stanley Harfenist
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Andrew N. Heine
-----------------------
Andrew N. Heine
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Elwood A. Rickless
--------------------------
Elwood A. Rickless
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ John L. Schroeder
--------------------------
John L. Schroeder
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Robert D. Siff
------------------------
Robert D. Siff
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Edwin Tornberg
------------------
Edwin Tornberg
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Leonard Tow
---------------
Leonard Tow
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ Claire Tow
---------------
Claire Tow
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 6, 1996 /s/ C.H. Symington, Jr.
-----------------------------
Charles H. Symington
<PAGE>
EXHIBIT No. 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Citizens Utilities Company constitutes and appoints Robert J. DeSantis and
Livingston E. Ross, jointly and severally, for him in any and all capacities to
sign on Form 10-K for the fiscal year 1994 for Citizens Utilities Company, and
any and all amendments to said Form 10-K, and to file the same, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.
February 26, 1996 /s/ James C. Goodale
--------------------------
James C. Goodale
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,922
<SECURITIES> 329,090
<RECEIVABLES> 202,552
<ALLOWANCES> (2,739)
<INVENTORY> 18,191
<CURRENT-ASSETS> 252,702
<PP&E> 4,187,354
<DEPRECIATION> 1,279,324
<TOTAL-ASSETS> 3,918,187
<CURRENT-LIABILITIES> 503,678
<BONDS> 1,187,000
<COMMON> 56,896
0
0
<OTHER-SE> 1,503,017
<TOTAL-LIABILITY-AND-EQUITY> 3,918,187
<SALES> 1,069,032
<TOTAL-REVENUES> 1,069,032
<CGS> 193,553
<TOTAL-COSTS> 621,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,775
<INCOME-PRETAX> 226,353
<INCOME-TAX> 66,817
<INCOME-CONTINUING> 159,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,536
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
